China Market Stalls, Mercedes-Benz Relies on Financial Services to Sustain Profits

Mercedes-Benz’s profit rebound in the second quarter failed to mask the stall in the Chinese market.

On July 28, Mercedes-Benz Group AG released its financial results for the second quarter of 2026. The group reported operating revenue of €32.061 billion for the quarter, a year-on-year decrease of 3.3%; net profit amounted to €1.086 billion, a year-on-year increase of 13.5%; and adjusted EBIT reached €2.299 billion, up approximately 16% year-on-year.

In the first half of the year, Mercedes-Benz Group achieved operating revenue of €63.663 billion, a 4% year-on-year decline; net profit was €2.519 billion, down 6% year-on-year.

Due to continued pressure in the Chinese market, the company simultaneously lowered its Full-Year Guidance for 2026. Both Mercedes-Benz passenger car sales and group revenue forecasts were revised from previously expected levels flat with the previous year to slightly below the previous year's levels.

The true driver behind the change in the full-year outlook is the Chinese market.

In the second quarter, global passenger car sales for Mercedes-Benz totaled 417,765 units, a 7.9% year-on-year decline. Among these, sales in the Chinese market amounted to only 98,624 units, a 30% year-on-year drop, making it the region with the largest decline among Mercedes-Benz’s major markets.

In the first half of the year, cumulative deliveries in China totaled 210,200 units, a 28% year-on-year decrease.

In contrast to the slump in China, sales in the European market grew by 5% year-on-year in the first half, while the North American market saw a 15% increase. The share of the Chinese market in Mercedes-Benz’s global sales has dropped from 31% in 2025 to 21%.

Revenue figures similarly reflect this trend.

In the first half of the year, Mercedes-Benz’s revenue in the Chinese market was €7.01 billion, a 19.1% year-on-year decline, significantly higher than the group’s overall revenue drop of 4%. Mercedes-Benz attributed the decline to intensified price competition in the Chinese market and the brand being in a critical transition phase between old and new models, with several key models in the ramp-up period for production capacity and assembly line switching.

The seemingly contradictory phenomenon of declining sales but rising net profit is driven by multiple factors. The profit improvement mainly stems from refined cost control and continuous optimization of the product mix structure.

The financial report shows that Mercedes-Benz continues to advance efficiency enhancement measures, with R&D expenditures and some operating costs decreasing, thereby alleviating profit pressure to some extent.

Furthermore, the light commercial vehicle and financial services businesses performed relatively steadily, offsetting the impact of declining profitability in the passenger car business to some degree. The adjusted EBIT for the financial services business was €492 million, a 70% year-on-year increase. At the group level, a gain of €131 million related to the sale of the Athlon leasing subsidiary was also recorded.

However, the automotive business itself still faces significant pressure.

In the first half of the year, Mercedes-Benz Passenger Cars reported operating revenue of €45.945 billion, a 5% year-on-year decrease; the adjusted return on sales dropped from 6.2% in the same period last year to 4%. The adjusted EBIT for the Passenger Cars segment was €909 million, a 26% year-on-year decline. Notably, the passenger car business also recorded an impairment loss of €704 million related to equity-method investments in China.

The adjusted free cash flow for the industrial business was €1.276 billion, a 35% year-on-year decrease, indicating that the impact of shrinking sales on operational cash generation capabilities has begun to materialize.

Electric vehicles remain one of the few bright spots for Mercedes-Benz.

In the second quarter, global deliveries of pure electric vehicles amounted to approximately 63,000 units, a 50% year-on-year increase. In the first half of the year, pure electric vehicle sales reached 103,000 units, up 45% year-on-year. Consequently, Mercedes-Benz raised its full-year expectation for the share of electrified models from 21%-23% to 23%-25%.

However, this growth is primarily concentrated in the European and North American markets, with pure electric vehicle sales in the Chinese market showing no significant improvement. Pure electric vehicle sales in the European market reached 43,500 units, an 87% year-on-year increase.

Meanwhile, Mercedes-Benz sold 58,600 plug-in hybrid models in the first half of the year, a 34% year-on-year decrease, mainly affected by the discontinuation of certain models in the Chinese market and the elimination of tax incentive policies in the United States.

Facing continued pressure in the Chinese market, Mercedes-Benz has launched multi-level response measures. The company is advancing its largest-ever product launch plan, intending to introduce over 40 new models between 2025 and 2027. In the Chinese market, Mercedes-Benz plans to launch 7 exclusive models by 2027, covering core electric products such as the GLC, C-Class, and E-Class built on the new MB.EA pure electric architecture.

Organizational adjustments are also underway. Previously, Beijing Benz Automotive Sales Service Co., Ltd. planned to reduce its workforce from approximately 900 to under 600 through two rounds of personnel optimization. The R&D system is expected to see a layoff rate of about 10%, affecting approximately 2,000 R&D staff in Beijing and Shanghai.

Mercedes-Benz CEO Ola Källenius stated in the financial report that despite the severe market environment, the company maintained its development momentum in the second quarter and will continue to advance its product launch plan. However, the company’s decision to lower its full-year revenue forecast indicates that management believes the headwinds in the Chinese market will persist until the end of the year.

For Mercedes-Benz, how to accelerate the electric transformation while stabilizing the fundamental base of fuel vehicles, and how to find a new balance point between sales volume and profit, will be key to determining whether it can reverse the situation in the Chinese market.