Mercedes Warns Car Margin May Slump to Lowest Since 2020

(Bloomberg) -- Mercedes-Benz Group AG expects its carmaking margin to drop to as low as 6% this year as it grapples with fierce competition and uneven demand in the global auto market.

The manufacturer plans to reduce production costs by 10% through 2027 and will work with suppliers to lower material expenses, it said Thursday. After pledging to boost margins to a minimum of 8% less than three years ago, the new guidance marks a blow to Mercedes’ strategy of shifting upmarket to secure higher returns.

Mercedes shares fell as much as 3.8% in Frankfurt. The stock is down around 10% over the past year.

“We’re looking at our entire business model and every cost category” for efficiency measures, Chief Executive Officer Ola Källenius said during a presentation to investors, adding that the cuts would make Mercedes “slimmer, faster and stronger.”

Under Källenius, the company has been directing resources to its most expensive vehicles and shifting away from less profitable entry-level models like the compact A-Class. But weak demand for its top-end models in China — like Maybach limousines, AMG performance cars and the G-Wagon — has been weighing on the strategy.

Mercedes’ operating earnings slumped 30% last year. Its carmaking margin fell to 8.1%, well below the previous year’s 12.6%. The company expects that margin to be between 6% and 8% this year. Mercedes rivals Porsche AG and BMW AG have also reported shrinking margins due to intensifying competition in China and high development costs for EVs.

Mercedes Chief Financial Officer Harald Wilhelm said he expected the company’s margin would rise toward at least 10% by 2027, helped by reductions in staff and research and development costs.

Like other European carmakers, Mercedes has seen flagging demand for electric vehicles, with sales falling short of expectations despite heavy investments. Many manufacturers have had to cut costs and return to upgrades for their combustion-engine lineups.

Rising trade tensions and US President Donald Trump’s threat to impose car tariffs are posing another threat to Mercedes, which imports about 63% of the vehicles it sells in the US. Trump said this week that he plans to announce as soon as April levies of around 25% on imported autos.

(Updates with CEO comment in fourth paragraph.)

©2025 Bloomberg L.P.