Mercedes-Benz Shares Under Pressure as Profits Plummet

Mercedes-Benz shares fall as 40% EBIT drop and China struggles lead to a reduced dividend. The automaker pins hopes on a massive new model offensive to recover margins.

Investor sentiment towards Mercedes-Benz has soured ahead of the company's full annual report, due for release this Wednesday. A sharp decline in earnings and a reduced dividend payout are casting a shadow over the German automaker's near-term prospects. The core challenge lies in whether a historic wave of new models can offset significant weaknesses in the crucial Chinese market.

A Concerning Financial Picture

Preliminary figures reveal substantial pressure on the company's bottom line. For the 2025 fiscal year, the group's adjusted earnings before interest and tax (EBIT) collapsed by 40%, landing at €8.2 billion. Market expectations were notably missed in the fourth quarter, which delivered an EBIT of just €1.60 billion. This fundamental softness is reflected in the stock's performance: shares are down 3.33% today, trading at €56.84, bringing the year-to-date loss to nearly 8%.

The profit slump is primarily attributed to tariff burdens amounting to approximately $1.2 billion and fierce competitive dynamics in China. Cost-reduction efforts, which saved €3.6 billion, were only partially able to cushion the blow.

Strategic Shifts and Shareholder Returns

China represents a persistent vulnerability for the Stuttgart-based manufacturer. With nearly one-third of all passenger cars sold there, the company is adjusting its production approach. The goal is to locally serve over 80% of the Chinese market by mid-2026, a move designed to cut expenses and mitigate currency risks.

For shareholders, the financial downturn has direct implications. The proposed dividend per share has been cut from €4.30 to €3.50. This reduction aligns with the decline in free cash flow from the industrial business, which fell from €9.2 billion to €5.4 billion. On a supportive note, the firm continues to back its share price through a buyback program, with up to €1.7 billion still available for repurchases this year.

Cost-Cutting and a Product Onslaught

In response to these challenges, Mercedes-Benz is embarking on its most extensive product offensive ever. The plan is to launch more than 40 new vehicles within the next three years. Significant hopes are pinned on models like the new CLA, which has already been named "Car of the Year 2026."

Concurrently, management is tightening its belt. Production at the Aguascalientes plant in Mexico is being phased out, and the company aims to reduce production costs per unit by 10% by 2027. Despite these measures, the outlook for the current year remains cautious. The cars division is targeting only an adjusted return on sales of 3% to 5%.

All eyes will be on the complete annual financial statement scheduled for March 4. Mercedes-Benz must demonstrate that a financial floor has been established. CEO Ola Källenius faces the critical task of outlining a credible pathway back to double-digit margins by 2027. In the interim, investors will be watching closely to see if the stock can reclaim support at its 50-day moving average, situated at €58.94.