Can Mercedes-Benz Stock Recover by 2026?

Mercedes-Benz reports a 48% profit drop in 2025, cuts dividend, and accelerates China localization to counter sales slump and intense EV competition.

Mercedes-Benz Group AG’s 2025 annual financial report paints a sobering picture, marked by a near-halving of profit, a proposed dividend cut, and mounting challenges in the critical Chinese market. In response, the automaker has announced a restructuring plan and an accelerated localization strategy. The central question for investors is whether these measures can deliver a tangible turnaround in financial performance as early as 2026.

Financial Performance: Profit Plunge Amid Solid Cash Generation

The 2025 figures reveal significant pressure points. Group revenue declined to €132.2 billion from €145.6 billion the previous year. Adjusted EBIT saw a sharp drop to €8.2 billion, compared to €13.7 billion in 2024. Consequently, the group’s net profit fell by 48% to €5.33 billion.

Management cited global tariff headwinds, unfavorable currency effects, and intense competitive dynamics in China as primary burdens. Cost reductions exceeding €3.5 billion within the Mercedes-Benz Cars division only partially offset these challenges.

Margin compression was evident across the board. The adjusted return on sales settled at 5.0% for Cars, 10.2% for Vans, and 9.7% for Financial Services. A relative bright spot was the industrial business's free cash flow, which remained robust at €5.4 billion, though notably below the prior year's €9.2 billion.

Strategic Shift: Accelerated Localization to Counter Chinese Headwinds

China, representing nearly one-third of the company’s passenger car sales, has become a focal point of concern. Sales in the region contracted by 19% in 2025, driven largely by fierce competition from domestic electric vehicle manufacturers.

Mercedes-Benz's counter-strategy involves a rapid acceleration of its localization efforts. The goal is for over 80% of vehicles sold in China to originate from local production by mid-2026. This move aims to lower costs and increase agility in responding to specific market demands.

Capital Allocation and Operational Outlook

For the Annual General Meeting scheduled for April 16, 2026, the Board of Management and Supervisory Board will propose a dividend of €3.50 per share, down from €4.30. Concurrently, a share buyback program of up to €2 billion, initiated in November 2025, is underway. By the end of 2025, approximately €300 million worth of shares had been repurchased, leaving up to €1.7 billion available for 2026.

Recent market sentiment reflects these pressures. The stock closed at €54.97 on Friday, marking a decline of 9.54% over the preceding 30 days. A 14-day RSI reading of 36.3 underscores the recent loss of momentum.

On the operational front, Mercedes-Benz is accelerating its product offensive, with plans for more than 40 new models within three years and an increased launch cadence in 2026. The company is also adjusting its global production footprint, targeting an adjusted capacity of approximately 2.2 million units by 2028. The joint venture facility in Aguascalientes, Mexico, will close by May 2026, reducing capacity by around 100,000 units.

The guidance for 2026 anticipates revenue at a level similar to the previous year, with Group EBIT "significantly above" the 2025 figure. Industrial free cash flow is expected to be slightly below the 2025 level. The company has provided more concrete margin targets: 3-5% for Cars and 8-10% for Vans, with a return to double-digit margins for the Cars division not projected until 2027.

The next significant milestone will be the Q1 2026 results, due on April 29. This report will offer the first tangible evidence of whether the localization push in China, capacity adjustments, and product offensive are beginning to support the promised earnings recovery.