Mercedes-Benz Cuts Its 2026 Outlook as China Deliveries Plunge 29%, Sending Shares Down 5% to a 52-Week Low

Mercedes-Benz, one of the world's most famous luxury carmakers, has cut its profit outlook for the year as a collapse in Chinese demand and rising costs eroded its margins.

The Stuttgart-based company lowered its 2026 guidance on Tuesday, October 27, while releasing preliminary third-quarter figures, according to German financial news site Ad Hoc News and other reports. The full third-quarter report is due on Wednesday, October 28.

Mercedes shares fell about 5% to €39.28 on the Lang & Schwarz trading platform, from a previous close of €41.37 on Xetra, close to their 52-week low of €38.89.

The outlook cut

Mercedes now expects the adjusted return on sales for its cars division to be 2% to 3% in 2026, down from its previous range of 3% to 5%. Group earnings before interest and tax (EBIT) are now expected to be at the level of the previous year, about €5.8 billion, rather than rising. Earlier, the company had projected an increase of at least 15%.

Industrial free cash flow is now expected to be significantly below the previous year.

The company's vans division is expected to maintain a return on sales of 8% to 10%, and its financial services division a return on equity of 12% to 14%.

The third quarter

Preliminary third-quarter results were mixed. Group EBIT came in at €1.77 billion, above the €1.60 billion consensus forecast. The cars division's adjusted return on sales was 2.5%, slightly above expectations of 2.4%. The vans division's return on sales was 9.4%, and financial services' return on equity was 13.8%.

But industrial free cash flow was just €172 million, well below the €422 million consensus.

Mercedes sold 491,700 cars and vans in the quarter, down 6% from a year earlier, with core car sales down 8%.

China's collapse

The main reason for the outlook cut is China, the world's largest car market and historically one of Mercedes's most profitable. Deliveries in China fell 29% in the nine months to September, after annual volumes had already fallen to their lowest since 2016, according to reports.

Chinese demand for foreign luxury cars has slumped as the Chinese economy has slowed and as domestic brands, led by BYD, Li Auto, Nio, Xiaomi and others, have captured buyers with technologically advanced electric vehicles at lower prices. Chinese consumers increasingly view domestic brands as more innovative, particularly in software, connectivity and autonomous driving features.

German luxury carmakers, including BMW and Porsche, have all suffered from the shift. For Mercedes, which depended on China for a large share of profits, the impact has been severe.

Rising costs

Mercedes also cited higher material costs, particularly in the fourth quarter. Rising prices for metals, energy and components have squeezed margins across the automotive industry. High oil prices linked to the conflict in West Asia have added to costs for logistics and production.

The electric challenge

Mercedes has been investing heavily in electric vehicles, but the transition has been slower and more expensive than expected. Demand for electric vehicles in Europe has been uneven, while Chinese competitors have set a high bar on price and technology.

The company has adjusted its strategy, extending the life of combustion engine models while continuing to develop new electric platforms. Balancing investment in new technology with profitability has become a central challenge.

Europe's industrial strain

Mercedes's profit warning adds to concerns about Germany's industrial base. The country's carmakers, which are central to its economy, face competition from China, weak demand in key markets, high energy costs and the expense of the transition to electric vehicles.

Volkswagen, BMW and Porsche have all reported pressures on profits, and the industry has announced job cuts and cost reductions.

What it means for India

India is a small but growing market for Mercedes-Benz, which is the country's largest luxury car brand. Mercedes-Benz India manufactures and assembles vehicles at its plant in Pune, and has reported strong demand from India's growing number of affluent buyers.

While India cannot offset the decline in China, it represents one of the few large markets where luxury car demand is expanding. The trade agreement between India and the European Union could also lower tariffs on imported European cars over time, potentially boosting sales.

The luxury segment under pressure

Luxury carmakers have historically enjoyed high margins, supported by strong brands and premium pricing. But those margins have come under pressure from slowing demand in China, higher costs and the expense of developing electric vehicles and software. Mercedes's cars division margin of 2-3% is far below the double-digit levels it achieved in recent years.

The company had pursued a strategy of focusing on top-end models, such as the S-Class, Maybach and AMG performance cars, to maximise profitability. Weak Chinese demand for those models has hit that strategy particularly hard.

Cost-cutting and restructuring

Mercedes has launched cost-cutting programmes, including reducing headcount and streamlining operations, to restore profitability. Investors will look for details of further measures during the analyst call. The company has also been returning capital to shareholders through buybacks, which may come under scrutiny if free cash flow remains weak.

The China conundrum

Mercedes's China problem is shared by many foreign carmakers, which once relied on the world's largest car market for growth and profit. Chinese consumers have rapidly shifted towards domestic brands, particularly in electric vehicles, where Chinese companies lead in battery technology, software and cost. Foreign brands have responded with price cuts, local partnerships and new models designed for Chinese tastes, but have struggled to regain market share. Some industry executives now expect foreign brands' share of the Chinese market to remain permanently lower.

Shareholder returns under pressure

Mercedes has been returning capital to shareholders through dividends and buybacks. Weak free cash flow may force the company to reassess the pace of those returns, an issue analysts are likely to raise on Wednesday's call.

What comes next

Mercedes will publish its full third-quarter report on Wednesday, October 28, and hold an analyst call, where investors will look for detail on its plans to restore margins. Cost-cutting measures, new model launches and the company's strategy in China will be in focus.

For the global luxury car industry, Mercedes's warning underlines how the rise of Chinese carmakers is reshaping competition, forcing established brands to rethink their strategies in the world's largest car market.