Mercedes-Benz Confirms Sharp Profit Decline and Strategic Overhaul

Mercedes-Benz 2025 profit fell 48%, prompting major cost reductions and a strategic pivot to localize production in China amid intense EV competition.

The latest financial results from Stuttgart-based automotive giant Mercedes-Benz reveal a challenging period, with the company's 2025 figures showing significant pressure on profitability. In response to a near-halving of its net profit, the automaker has announced a sweeping cost-cutting initiative alongside an unprecedented wave of new vehicle launches.

Financial Performance and Shareholder Returns

Mercedes-Benz Group's net profit plummeted by 48% to €5.33 billion. Revenue followed a downward trend, declining from €145.6 billion to €132.2 billion. A key profitability metric, the adjusted EBIT (earnings before interest and taxes), contracted sharply from €13.7 billion to €8.2 billion.

Reflecting this weaker earnings picture, the company's board has proposed a reduction in the dividend per share to €3.50, down from €4.30. This decision will be put to a vote at the Annual General Meeting on April 16. Concurrently, the firm continues to buy back its own shares, having spent €329 million between November and December 2025. An additional €1.7 billion is allocated for further share repurchases in 2026. Major shareholders Beijing Automotive Group and Geely Group have committed to keeping their voting rights below the 10% threshold through proportional tendering of shares.

Core Business Under Strain

The automotive divisions felt the brunt of the market headwinds. The adjusted return on sales for Mercedes-Benz Cars dropped to 5.0%, a significant fall from the 8.1% recorded the previous year. The Vans division also saw its margin compress, moving from 14.6% to 10.2%. Furthermore, the average selling price per passenger vehicle decreased to €68,100 from €71,000.

Management pinpointed several major burdens: new tariffs costing approximately $1.2 billion, adverse currency effects from a strong euro, and fierce competition, particularly in China. The industrial business's free cash flow was nearly halved, landing at €5.4 billion.

The China Challenge and Strategic Pivot

While China remains the single most important market, accounting for nearly one-third of global passenger car sales, it has become a primary concern. Sales in the region collapsed by 19%, driven largely by intense pressure from domestic electric vehicle manufacturers. In a strategic shift, Mercedes-Benz is accelerating its localization efforts in China, aiming for over 80% of vehicles sold there to be locally produced by mid-2026. This move is intended to reduce costs and improve market responsiveness.

A bright spot in the financials was the Financial Services division, which increased its result by nearly 12%.

Cost-Cutting and Capacity Adjustments

A rigorous efficiency program is now underway. The company aims to reduce production costs per vehicle by 10% by 2027, using 2024 as the baseline. This structural downsizing will incur one-time expenses of €1.6 billion. As part of this global capacity adjustment, the Aguascalientes plant in Mexico will close by May, resulting in a loss of roughly 100,000 units of production capacity.

Major Product Offensive Launched

Simultaneously, Mercedes-Benz is embarking on what it describes as the most extensive product offensive in its history. The plan includes bringing more than 40 new models to market within the next three years. The first half of 2026 will see refreshed versions of the S-Class and GLS, followed by new AMG models. The new CLA, which has already received the "Car of the Year 2026" award, along with the GLC and S-Class, are reported to have strong order books.

Cautious Outlook for the Coming Years

The company's guidance for 2026 remains conservative. The Mercedes-Benz Cars division is targeting only an adjusted return on sales between 3% and 5%. Group revenue is expected to remain at the prior-year level, while Group EBIT is projected to be significantly above the 2025 figure. The industrial business free cash flow is anticipated to be slightly below the 2025 level.

A return to double-digit margins is not forecast by management until 2027. The first-quarter results, due on April 29, will provide an early indication of whether the combined strategy of China localization, capacity realignment, and cost reduction is gaining traction.