Mercedes-Benz Beats Bleak Forecasts as China Rout Masks US and European Gains

Mercedes-Benz Q1 operating profit fell 17% to €1.9B but beat expectations, as US sales surged 20% while China demand collapsed 27%. BEV sales rose 8.7%.

The Stuttgart automaker delivered a first-quarter earnings report that reads like a tale of two worlds — one where Chinese demand is collapsing and another where American buyers are snapping up luxury vehicles at a double-digit clip. Despite a 17 percent drop in operating profit to €1.9 billion, Mercedes-Benz handily beat analyst expectations that had braced for a 29 percent plunge.

Revenue slipped roughly 5 percent to €31.6 billion, while net profit came in at just over €1.4 billion. Earnings per share of €1.49 also surprised to the upside. The passenger car margin compressed to 4.1 percent from 7.3 percent a year earlier, though that figure still sits within the company's full-year guidance range of 3 to 5 percent.

A Market Split Down the Middle

Global deliveries fell 6 percent to approximately 419,000 vehicles, but the headline number masks stark regional divergence. European sales rose 7 percent, and the US market surged 20 percent. China — still Mercedes-Benz's largest single market — told a different story entirely, with sales plunging 27 percent as domestic rivals push deeper into premium territory and overall demand remains tepid.

The company describes 2026 as a "transition year with model changes across the entire portfolio," a framing that helps explain but does not fully cushion the China shock. Vertriebsvorstand Mathias Geisen noted that geopolitical tensions in the Middle East have also triggered noticeable buyer hesitation, particularly among American customers in March.

New Models, New Headwinds

Mercedes-Benz is in the midst of a sweeping product offensive, planning more than 40 new models by 2027. The updated GLC is already outperforming internal expectations. But management cautions that meaningful financial benefits from this rollout will not materialize until next year.

On the cost side, US tariffs are expected to shave 1.5 percentage points off the core margin, though an accounting special effect softened the blow in the first quarter. A fresh risk has also emerged: the Iran conflict is disrupting aluminium supplies from Gulf states, with the EU missing roughly a quarter of its aluminium imports. Germany's automotive industry is the largest consumer of the metal, and CEO Ola Källenius acknowledged it is "too early to assess what impact the conflict will have."

Bright Spot in Electrification

Battery-electric vehicle sales provided a rare positive note, rising 8.7 percent to around 44,000 units, driven primarily by European demand. The BEV segment remains a small slice of total volume but is gaining traction as the model transition accelerates.

Guidance Stands, Shares Slide

CFO Harald Wilhelm reaffirmed that the company is "on track to achieve our full-year forecast." JPMorgan analyst Jose Asumendi kept an "Overweight" rating with a €70 price target, praising the solid start to the year.

The stock initially rose about 2.6 percent on the day of the release but has since surrendered those gains. Shares now trade at €48.45, down more than 21 percent year-to-date and hovering near a 52-week low. An ongoing buyback program with up to €1.7 billion remaining for 2026 signals management's conviction that the market has undervalued the stock. Whether investors agree will depend on how quickly the China turnaround materializes — and whether the aluminium bottleneck actually disrupts production lines.

A separate legal overhang remains unresolved: Mercedes-Benz is fighting a compensation program for auto loans in the UK, where potential provisions could weigh on future results.