Stuttgart, Germany — Mercedes-Benz reported a sharp drop in first-quarter operating profit as falling sales in China and rising raw material costs compounded pressure on the German carmaker.
Okay News reports that earnings before interest and tax fell to €1.9 billion ($2.22 billion) in the first quarter, down 17% year-on-year. First-quarter margins slipped to 4.1%, down from 7.3% a year earlier, but within the expected full-year range of 3-5%. The quarterly profit slump was smaller than expected, as analysts polled by Visible Alpha had forecast a 29% year-on-year fall.
The Middle East conflict has driven up global industry costs, compounding pressure on European automakers already hit by high U.S. import tariffs. Mercedes, like German peers Volkswagen and BMW, is battling falling sales in China, as domestic brands like BYD and Nio encroach on the premium segment after conquering the mass market with cheap, tech-laden electric vehicles. Mercedes‘ sales declined by 6% globally in the first quarter and by 27% in China, its largest single market.
Chief Executive Officer Ola Kaellenius is betting on sweeping cost cuts, including job reductions, while revamping Mercedes‘ lineup with 40 new models from last year through 2027. U.S. President Donald Trump‘s tariffs are expected to deal a 1.5-percentage point blow to Mercedes‘ core auto margin this year. That effect was lower in the first quarter due to an accounting effect linked to Mercedes‘ application for a tariff refund following a Supreme Court ruling last year.
Raw material costs are expected to rise further this year due to the Middle East conflict, Finance Chief Harald Wilhelm said. Mercedes‘ full-year forecast of operating profit “significantly higher” than last year presumes the conflict will soon be resolved, he added. The carmaker hopes for momentum in the second half from continued product launches, including a revamped S-class range to defend its status as a top luxury brand in China. Wilhelm said the company would maintain tight cost controls while aiming for a cautious return to higher margins in its core car business, with a mid-term target of 8-10%.
