A fresh warning lands on the German automotive scene. On October 27, 2026, Mercedes‑Benz cut its profitability ambitions for 2026. Management points to a tougher environment in China and expected cost increases in the fourth quarter. The announcement comes as premium German automakers are already being unsettled on their traditional growth market. The stock immediately fell on the Frankfurt Stock Exchange. These new 2026 forecasts mark a clear shift in tone for the brand.
Concretely, Mercedes‑Benz now expects an adjusted operating margin of between 2% and 3% for its Mercedes‑Benz Cars division in 2026. The previous target ranged from 3% to 5% for this same margin. Mercedes‑Benz Group AG now only anticipates a broadly flat group-wide EBIT compared with 2025. It had recently been aiming for a net increase in that EBIT. China, the star’s flagship market, lies at the center of this pivot. Demand there is weak and local competition is intensifying. Behind these percentages, the real question is whether Mercedes can stay highly profitable in China.
2026 Objectives: Mercedes‑Benz Recalibrates Its Profitability
This new margin range cuts against the ambitions Mercedes had shown not long ago. The leadership under Ola Källenius had been betting on a “less volume, more luxury” model to boost profitability. By the third quarter of 2026, the passenger cars division had already posted an adjusted margin of about 2.5%. Mercedes‑Benz Vans, by comparison, remained around 9.4%. The gap underscores the specific pressure weighing on sedans and high‑end SUVs.
The quarterly results set the tone. For the period, the group’s EBIT stood at roughly €1.77 billion. Industrial free cash flow did not exceed €172 million, well short of market consensus near €422 million. Mercedes now expects 2026 industrial free cash flow to be materially lower than in 2025. It had initially anticipated only a modest decline. In trading, the stock slid as much as 5.5%. Since January 2026, the shares have shed more than a third of their value.
China, the Key Market Turning on Mercedes
When the machinery falters, it is most visible in China. The country remains the world’s largest automotive market. In China, Mercedes’ sales fell by about 31% in the third quarter of 2026. Before that third quarter, sales were already down 27% in Q1 and 30% in Q2. Global deliveries for the group were down around 8%. This slowdown mainly reflects that pivotal market, where demand is cooling and where local rivals are driving prices lower.
Local manufacturers are gaining ground in the premium segment, offering models that are competitive on price and technology. For Daniel Schwarz, an analyst at Metzler Bank, China remains the primary explanation for the disappointing performance of German carmakers. BMW Group and Volkswagen Group have already cut their own targets this year, citing the deterioration of the Chinese market. Mercedes and BMW remain heavily exposed to China, while Porsche AG has reduced its dependence on the country. Stuttgart’s maker has also pushed its positioning further into the ultra-luxury tier. That stance makes it less vulnerable to current competition for the time being. To respond, Mercedes is strengthening its cost-cutting programs. The efforts cover both administrative functions and R&D. The group is also highlighting a product offensive, particularly in electric vehicles, to regain pricing power.
