Mercedes-Benz Faces Sharp Profit Decline Amid Global Automotive Industry Challenges

Mercedes-Benz, one of Germany's largest companies with approximately 175,000 employees, is currently experiencing a significant downturn in earnings. The company's latest financial results revealed that its operating profit has more than halved, with profit margins falling from just over 8 percent in the previous year to 2.8 percent in the last quarter of 2025. This decline is attributed to steep drops in sales across major markets, including a 34 percent decrease in China and a 19 percent decline in the United States. This marks the second consecutive year of reduced profits for Mercedes-Benz, prompting the company to lower its outlook for 2026.

This situation is emblematic of broader difficulties within the European automotive sector. Other major manufacturers, such as Volvo Cars and Ford, have reported similarly disappointing figures. Recently, Volvo Cars' financial results led to a near 30 percent drop in the company's share price, while the Ford Group announced a loss of approximately 73 billion SEK for 2025. Ford's market share in Europe has plummeted from around 8 percent to below 3 percent in just a few years. BMW and Volkswagen are also expected to report declining profit margins and have issued profit warnings.

The automotive industry, which employs nearly 14 million people across the European Union, is facing significant structural challenges. An estimated 100,000 jobs in the European automotive sector have been lost during 2024 and 2025, and more may be at risk if current trends persist. Against this backdrop, the success of new electric SUVs, such as Volvo's EX60, BMW's IX3, and Mercedes' GLC, is considered crucial for the future of these companies.

Several key factors are driving these difficulties:

• Trade tensions: The ongoing trade disputes and increased tariffs are severely impacting profitability. For example, a 15 percent tariff on vehicles exported from Europe to the United States or China translates into a price increase of over 120,000 SEK per vehicle, making European cars less competitive abroad.
• Slowing Chinese market: China, previously the world's largest and fastest-growing car market, has become less lucrative for Western manufacturers. Local Chinese brands, often supported by state subsidies, are gaining market share as domestic consumers increasingly prefer homegrown vehicles. This trend has led to a sharp decline in sales for Western brands like Mercedes-Benz, which saw a 34 percent decrease in China in December.
• Rising Chinese exports: Chinese automakers are rapidly expanding their presence in Europe, with exports expected to increase by 25 percent this year to nearly 7 million vehicles. Brands like BYD have experienced exponential growth, expanding their dealer network massively and intensifying competition for established European manufacturers.
• Electric vehicle market shift: While 2025 marked a breakthrough year for electric vehicle (EV) sales in Europe, with a 30 percent increase and a market share reaching 20 percent, Chinese brands were the primary beneficiaries. Their share of the European EV market approached 10 percent by December, despite the imposition of tariffs. In contrast, Mercedes-Benz recorded a decline in global EV sales for the second year running.

The European automotive industry now faces a pivotal moment as it enters what is being described as a new phase of competition in the electric vehicle sector. Failure by established brands like Mercedes-Benz and BMW to adapt successfully could result in further job losses and have significant political and economic repercussions across Europe, particularly as populist movements gain traction in several major countries.