Mercedes-Benz Defies Triple Headwinds as Q1 Beats Dismal Forecasts

Mercedes-Benz posts Q1 earnings above dire projections, with EBIT down 16.8% to €1.9B, as China sales plunge 27% but US and EV growth offset headwinds.

Mercedes-Benz delivered a first-quarter earnings surprise on Tuesday that left analysts recalibrating their expectations, even as the German automaker navigates a punishing combination of collapsing Chinese demand, US tariffs, and geopolitical turmoil. The shares, languishing near a 52-week low at €48.72 — roughly 21% below their annual peak — barely budged, reflecting the market's lingering skepticism.

Earnings Land Above Dire Projections

Revenue for the opening three months of 2026 fell 4.9% to €31.6 billion, while earnings before interest and taxes dropped 16.8% to €1.9 billion. On the surface, those numbers look bleak. But the market had braced for far worse — analysts had penciled in an EBIT decline of roughly 29%. The adjusted margin on passenger cars came in at 4.1%, down sharply from 7.3% a year earlier but still within the company's full-year guidance range of 3% to 5%.

"We are on track to achieve our full-year forecast," finance chief Harald Wilhelm said, pointing to the results as validation of the group's strategy.

A Tale of Two Markets

The sales figures for the quarter tell a story of stark regional divergence. Global deliveries of passenger cars slipped 6% to around 419,400 units, with virtually the entire decline concentrated in China, where sales cratered 27%. Mercedes attributed the slump to active inventory management and model changeovers ahead of generational refreshes, calling 2026 a "transition year" in the world's largest auto market.

Yet the company is doubling down on its Chinese presence rather than retreating. At the Auto China 2026 show in Beijing, Mercedes unveiled four new products, including the fully electric GLC L — a long-wheelbase SUV built exclusively for the Chinese market, packing 310 kW of power and 800 Nm of torque with a CLTC range exceeding 700 kilometers. The local model lineup is slated to expand from 14 to 20 vehicles by 2027, seven of them China-only. The Beijing plant recently rolled out its six-millionth car.

Meanwhile, the West provided a counterweight. US deliveries surged, with SUV models like the GLC, GLE and GLS climbing more than 22%. In Europe, the new battery-electric CLA propelled EV sales growth of 34%. Group-wide, battery-electric vehicle sales rose 11% to roughly 50,400 units.

Tariffs, Geopolitics and a Court Ruling

The Trump administration's tariffs are expected to shave 1.5 percentage points off the core margin for the full year. In the first quarter, however, an accounting benefit from a tariff refund claim — triggered by a Supreme Court ruling — partially offset the damage.

A less conventional headwind also emerged. Sales chief Mathias Geisen pointed to the war in the Middle East as a third factor weighing on consumer behavior globally. "The Iran conflict has implications for consumer sentiment worldwide," he told Handelsblatt, noting a pronounced pullback in US buying activity during March.

Athlon Sale and the Path Ahead

Alongside the earnings release, Mercedes announced the planned sale of its Athlon leasing subsidiary to BNP Paribas. Contracts have been signed, though the deal remains subject to regulatory approval and is expected to close in the second half of 2026. The transaction could free up as much as €1 billion for the parent company, though the exact purchase price was not disclosed. Mercedes originally acquired Athlon in 2016 for €1.1 billion.

Despite the multiple pressures, management reaffirmed its full-year outlook. Operating profit for 2026 is expected to land "significantly above" last year's level — a comparison made easier by the hefty restructuring charges that weighed on 2025 results. The company cautioned that meaningful benefits from its ongoing model offensive will not materialize until 2027.

The medium-term margin target for the cars division has already been trimmed to 8-10%, down from a previous 10%, with management citing persistent tariff headwinds. Should current trade policies remain in place, the group warned of negative impacts on EBIT, free cash flow and return on sales.