Mercedes-Benz is cutting its profit forecast as China sales slide

Mercedes-Benz reduced its profit outlook for the year on Tuesday, pointing to softer demand in China along with increased fourth-quarter expenses, the company said.

The German automaker now projects that its cars division will deliver an adjusted sales margin of 2% to 3%, versus the earlier range of 3% to 5%. It expects earnings before interest and tax to match the prior-year level of 5.82 billion euros ($6.5 billion), after forecasting a significant increase.

"In addition to an increasingly challenging market environment in China, Mercedes-Benz Group expects higher costs in the fourth quarter, including higher material costs," the company said in a statement.

The company expects the industrial segment's free cash flow to come in well under last year's figure. Its earlier forecast called for a slight shortfall.

Mercedes-Benz stock dropped by up to 5.5% during early trading in Europe on Tuesday. The stock has shed upwards of a third of its value so far in 2026.

Mercedes-Benz gave preliminary third-quarter figures with the update. It put the cars division's adjusted sales margin at 2.5% and the vans division's at 9.4%. Group EBIT is estimated at 1.77 billion euros, with industrial free cash flow forecast at 172 million euros. Full third-quarter results are due Wednesday.

Car sales in China, the company's biggest market, declined 31% in the third quarter compared with the same period last year.

The slide in China has run through the year. Mercedes-Benz's deliveries in the country fell 30% in the second quarter from a year earlier, and global deliveries dropped 8%. In the first quarter, China deliveries fell 27%, and the company's earnings before interest and taxes declined 17% to 1.9 billion euros.

Mercedes-Benz trimmed its full-year sales targets during the summer and recorded a sizable write-down in China that dented second-quarter profit at its core cars division, according to The Wall Street Journal. The company is banking on a lineup of over 40 new vehicles arriving in the next two years or so, plus layoffs and the relocation of part of its manufacturing from Germany to cheaper locations like Hungary, according to The Wall Street Journal.

The cut puts Mercedes-Benz in line with Volkswagen and BMW as the most recent German automaker to caution that its China business is deteriorating, according to Bloomberg.