Profit Warning and Tariff Concerns
Mercedes-Benz has issued a warning that its profits will be significantly lower in 2025 due to ongoing economic challenges and potential trade barriers. The German automaker announced a new cost-cutting program to address these financial difficulties. The company reported a sharp decline in profit margins, dropping from 12.6% in 2023 to 8.1% in 2024, and forecasts a further decline to between 6% and 8% this year. However, these projections do not account for any potential tariff increases in the U.S. market.
Mercedes-Benz Chief Financial Officer Harald Wilhelm cautioned that if U.S. import tariffs on EU-made vehicles increase from 2.5% to 10%, the company’s profit margins could take a hit of up to one percentage point before any mitigation efforts. The warning comes after former U.S. President Donald Trump suggested imposing a 25% tariff on imported cars, a move that could significantly impact Mercedes-Benz, which imported more than half of the 374,000 vehicles it sold in the U.S. last year.
Sales Struggles and Market Challenges
Like many European car manufacturers, Mercedes-Benz has faced difficulties due to sluggish demand in key markets, particularly in China and Europe. The company’s luxury segment, including high-end models like the Maybach limousine, has been hit hard by shifting consumer preferences in China, where price competition has intensified. This has led to a sharp decline in profits, with the company’s car division experiencing a 41% drop, while overall net profits fell 28% to €10.4 billion in 2024.
Revenue also declined by 5% to €146 billion. To counter these challenges, Mercedes-Benz is implementing a strategy to improve efficiency and reduce costs. The automaker’s stock has declined by more than 11% over the past year, with an additional 3% drop on Thursday following its latest financial outlook.
Cost-Cutting Measures and Future Plans
In response to declining profits and increasing competition, Mercedes-Benz CEO Ola Källenius announced a plan to cut production costs by 10% by 2027. The company has been in discussions with the IG Metall union regarding potential job reductions in Germany as part of these cost-cutting efforts. Additionally, Mercedes-Benz is looking to revitalize its product lineup, with plans to launch a dozen new models in the coming years, starting with the new electric CLA. These measures aim to boost sales and improve profit margins in an increasingly competitive automotive market.
Meanwhile, Renault, another major European automaker, has also warned of a decline in margins due to stricter EU emissions regulations. The French carmaker expects its operating margins to fall from 7.6% in 2024 to 7% or higher in 2025, as it increases incentives to drive electric vehicle sales and meet emissions targets. Mercedes-Benz’s latest announcements reflect the broader challenges facing the automotive industry as companies navigate shifting market conditions, regulatory pressures, and potential trade disruptions.
