Mercedes Trims 2026 Outlook as China Slump Keeps Biting Into Car Profit

Mercedes-Benz has cut its earnings and margin targets for 2026, a clear sign that the downturn in China is still dragging on its core car business rather than easing.

The headline number looks strong at first glance. Third-quarter operating profit came in at €1.77bn (US$1.97bn), up 136.4% year on year. But that jump owes far more to a weak comparison base than to any turnaround.

A Flattering Comparison

A year earlier, Mercedes booked €876m in restructuring charges and €427m in legal costs. Strip those out and the picture sours considerably. The double-digit gain is arithmetic, not momentum.

That is why the company is now steering investors toward a softer 2026, with both its EBIT guidance and margin expectations pulled back. The car division is where the damage shows up most plainly, and China is the reason.

Why China Still Hurts

The world’s largest auto market has turned hostile for the German premium brands. Local rivals have moved quickly upmarket, undercutting established players on price while closing the gap on technology and cabin quality.

For Mercedes, that means volume pressure at exactly the point where its margins are fattest. The company is not standing still — it has already outlined a broad overhaul of its China operations, a response to sales that have been sliding sharply.

• Q3 operating profit: €1.77bn, up 136.4% year on year
• Prior-year drag: €876m restructuring plus €427m legal costs
• 2026 outlook: lower EBIT guidance and margin expectations
• Core problem: sustained weakness in the Chinese market, prompting a planned operational revamp

The bottom line: the profit gain is a statistical echo of a costly 2025 quarter, not evidence of a rebound.

The read-across for the wider sector is uncomfortable. Mercedes is hardly alone in feeling the squeeze in China, and the choices facing premium carmakers — cut costs, localise production, or accept thinner returns — are being made across the board.

What investors will watch next is whether the China overhaul actually lands. Guidance cuts are easy to announce. Restoring pricing power in a market where domestic brands set the tempo is a far harder job, and Mercedes has given itself until 2026 to prove it can.