By Dominic Chopping
Mercedes-Benz expects profitability in its core car business to remain muted this year as it continues to grapple with tariff costs and intense competition in China.
The German luxury-car maker said it expects to report an adjusted margin in the car unit of between 3% and 5% this year, below the 5.6% level that consensus had been looking for and compared to the 5% it registered for 2025.
The margin would have hit 6.1% in 2025 had it not been for tariffs, implying costs of around 1 billion euros, or $1.2 billion.
"We saw caution on China and on U.S. tariffs for 2026, and it appears those concerns were well-founded," RBC Capital Markets analyst Tom Narayan said in a note to clients.
At the same time, group revenue and earnings last year came in below expectations, with revenue dropping 9.2% and earnings before interest and taxes more than halving.
Shares fell nearly 6% at the European open before paring some losses to trade 2.6% lower by early afternoon.
However, the company said it expects earnings to significantly improve this year as it benefits from new model launches and a groupwide effort to boost competitiveness.
It expects to launch more than 40 new models by 2027 and said Thursday that its order books are filled well into the second half of 2026 with production running on three shifts to meet high demand.
"Strong demand for our new CLA, GLC or S-Class proves that our customers are excited about our new models. We are moving forward with a clear game plan and a very competitive product portfolio," Chief Executive Ola Kallenius said.
Last year the company outlined plans to become more efficient through a series of measures that include job cuts and shifting some production from its German home to lower-cost countries such as Hungary.
Production capacity is being adjusted to around 2.2 million units by 2028 and as a result, it said Thursday that assembly of Mercedes-Benz vehicles at the joint venture plant it has with Nissan in Aguascalientes, Mexico, would end in 2026. Production capacity in Germany will stand at 900,000 units, while Kecskemet in Hungary will be able to produce up to 400,000 vehicles, it said.
Group production capacity of around 2.8 million units some years ago fell to 2.5 million units in 2024.
Aside from capacity adjustments, Mercedes said it would also work to lower energy costs, increase automation, lower logistics costs and lean on artificial intelligence as it targets a 10% cut to the production cost of each vehicle from 2027 compared to 2024 levels.
Job cuts launched last year and further measures that include a reduction in management positions and outsourcing of some noncore activities will further increase efficiency this year and next, with fixed costs falling 10% between 2024 and 2027, it said.
European automakers have been rushing to slash costs and improve competitiveness as the industry navigates stuttering electric-vehicle demand, a shifting trade landscape following President Trump's tariff regime and fierce competition in China.
It said its efforts boosted profit by more than 3.5 billion euros in 2025.
In China, the company is working to defend and build its position over the coming years through a series of moves such as using more local suppliers and optimizing production.
China is a key region for the company, where its car sales fell by around a fifth last year. Mercedes has previously outlined plans to unify some aspects of its technology and design which will allow it to tailor products to specific markets like China.
In the U.S., the company has pledged to localize more production from Europe to limit damage from import duties.
Mercedes said it expects car sales this year to remain at 2025 levels.
Group revenue will also be at the 2025 level of 132.21 billion euros and group EBIT is expected to be significantly above the previous year's 5.82 billion euros, it said.
Analysts polled by FactSet had expected 2025 revenue of 133.35 billion euros, down from 145.59 billion euros in 2024, and EBIT of 6.32 billion euros from 13.6 billion euros in 2024.
The company reported a 45% drop in earnings at its car unit last year on lower volumes, particularly in China, negative net pricing, tariffs and currency headwind.
In the midterm, car sales are seen at around 2 million vehicles, including a more-than 15% increase in top-end vehicle sales and a doubling of its electrified vehicle share.
Mercedes lowered its dividend to 3.50 euros from 4.30 euros a share in 2024 and said it still has 1.7 billion euros of its current share buyback program to run in 2026.
Write to Dominic Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
February 12, 2026 07:21 ET (12:21 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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