Why Is Mercedes-Benz Reeling From a 70% Profit Plunge?

Mercedes-Benz suffered one of its sharpest profit drops in years, with second-quarter net earnings plunging nearly 70% to €957 million. The luxury giant cited escalating US tariffs and plummeting sales in China as the primary causes for its financial setback.

The automaker now warns that 2025 revenue will fall "significantly below" last year's total of €146 billion, a stark departure from its earlier forecast of a slight decline.

US Tariffs Slam Profit Margins

A surge in import tariffs imposed by the United States hit Mercedes hard in Q2. The company absorbed a direct blow of $420 million from these levies alone, reducing its car division’s profit margin to 5.1%.

Without the tariffs, the margin would have reached 6.6%, a crucial buffer in a tight luxury market. The new 15% US import tariff, though lower than the prior 27.5% rate, is still far above pre-trade war levels and will cost Mercedes hundreds of millions annually.

The company is trying to limit exposure by ramping up US-based production, including at its Alabama facility, but the near-term earnings impact is unavoidable.

Did you know?
Mercedes-Benz’s all-electric vehicle sales fell 24% in the latest quarter, defying global EV growth trends. Meanwhile, plug-in hybrids surged 34%, showing shifting consumer preferences under tariff and pricing pressures.

China Sales Tumble Amid Fierce Competition

China, Mercedes-Benz’s largest market, posted a 19% year-over-year sales decline for the quarter. The drop tallies with a wider trend: in Q1, Mercedes sales slipped 10% in China, the sharpest reversal since previous years of steady growth. Rival Chinese automakers, especially in electric vehicles, are taking shares aggressively, forcing price cuts and squeezing profit.

The company’s overall global sales declined 9% in unit volume, led by the China market’s sharp fall and compounded by a 24% drop in pure battery-electric vehicle deliveries. Plug-in hybrids were one bright spot, but they couldn’t offset the losses elsewhere.

ALSO READ | Samsung to manufacture Tesla's AI6 chips in $16.5B agreement

Softer Pricing and Foreign Exchange Add Strain

Beyond tariffs and China, Mercedes grappled with weaker-than-expected pricing power worldwide. Competitive discounting in both Europe and America, plus negative currency effects, sapped earnings.

Revenue fell 10% year-over-year to €33.2 billion, with the car business alone seeing an 11% drop. Mercedes also lost contributions from its China joint venture, pushing adjusted car EBIT down 56% and overall group EBIT down 68%.

Revised Forecast and Resilience Measures

CEO Ola Kaellenius described the results as “robust” given the environment, but Mercedes has now slashed its margin and revenue targets for the full year. The car division is aiming for a 4%-6% profit margin (down from 6%-8%), acknowledging continued global trade uncertainty and shifting consumer demand.

The company is leaning on cost controls, supply chain adaptation, and new product launches to regain stability. Its industrial cash flow remains strong, and free cash generation even improved year-over-year, giving Mercedes some comfort as it faces further headwinds.

The next half of 2025 will test whether Mercedes can adapt to a world where tariffs, local EV rivals, and fast-changing tastes rule the road. The automaker is betting on global diversification and new electric models to recover from one of its steepest profit plunges in decades.