Volkswagen vs. Mercedes Stock in 2025: Who Wins the Profitability Race?
- Current Stock Performance: Neck-and-Neck Race With Subtle Differences
- Business Model Showdown: Volume vs Premium Strategy
- Profitability Metrics: Mercedes Pulls Ahead
- Valuation Comparison: Bargain Hunt or Value Trap?
- Analyst Perspectives: Surprisingly Bullish on Volkswagen
- China Risk: Achilles' Heel for Both
- Investment Thesis: Turnaround Bet vs Steady Eddie
- Final Verdict: Quality Over Hope
- Volkswagen vs Mercedes Stock: Key Questions Answered
In the high-stakes battle between German automotive giants Volkswagen and Mercedes-Benz, the profitability crown is up for grabs. As of October 2025, our analysis reveals Mercedes leading with superior margins (6.9% vs VW's 4.2%) and cash Flow (€2.4B positive vs VW's €0.8B negative), while Volkswagen offers turnaround potential with analysts predicting 112% upside. The China risk looms large for both, but Mercedes' premium positioning provides better insulation. For investors, it's a classic quality vs value play - do you want the dividend stability of Mercedes (8.21% yield) or the speculative upside of Volkswagen's restructuring story?
Current Stock Performance: Neck-and-Neck Race With Subtle Differences
As we analyze the year-to-date performance through October 2025, both automakers show resilience in a challenging market. Volkswagen's preferred shares have gained 2.43% since January, slightly outperforming Mercedes' 0.55% increase. Both have beaten the STOXX Europe 600 Automobiles & Parts index, which dipped 0.15% in the same period. However, the 12-month picture tells a different story - Mercedes' 6.72% decline looks downright heroic compared to sector peers. "What's interesting," notes BTCC market strategist Li Wei, "is how Mercedes' premium positioning helps it weather storms better than volume players."
Business Model Showdown: Volume vs Premium Strategy
The fundamental divergence begins with their market approaches. Volkswagen operates as a multi-brand volume player spanning from budget Seats to luxury Audis, plus the TRATON truck division. Their H1 2025 results showed €158.4B revenue (flat YoY) from 4.36M vehicle sales. Contrast this with Mercedes' laser focus on premium segments - AMG, Maybach, and G-Wagen accounted for disproportionate profits despite Q1 2025 revenue dipping to €33.2B. "It's the classic tortoise vs hare scenario," observes Automotive News Europe editor Peter Sigal. "VW chases scale through shared EV platforms like MEB, while Mercedes banks on brand equity allowing premium pricing power."
Profitability Metrics: Mercedes Pulls Ahead
The financials reveal stark differences. Volkswagen's H1 2025 operating profit plummeted 33% YoY to €6.7B, with margins collapsing to 4.2%. Q1 was worse - 37% profit drop accompanied by negative €0.8B cash flow. Meanwhile, Mercedes posted €2.3B EBIT with €2.4B industrial free cash FLOW and fortress-like €33.3B net liquidity. The margin gap (6.9% vs 4.2%) underscores Mercedes' pricing power advantage. As Bloomberg Intelligence analyst Michael Dean puts it, "When the tide goes out, you see who's swimming naked - VW's volume model struggles when demand softens, while Mercedes' premium customers keep spending."
Valuation Comparison: Bargain Hunt or Value Trap?
| Metric | Mercedes-Benz | Volkswagen |
|---|---|---|
| P/E (TTM) | 7.43 | N/A |
| P/B Ratio | 0.59 | N/A |
| Dividend Yield | 8.21% | N/A |
Mercedes appears attractively valued with a P/B of 0.59 and juicy 8.21% yield, while Volkswagen's metrics remain opaque. The cash flow divergence is particularly telling - Mercedes generated €2.4B vs VW's €0.8B outflow. "At these valuations," argues UBS analyst Patrick Hummel, "Mercedes offers margin of safety through its balance sheet strength, while VW requires perfect execution of its turnaround."
Analyst Perspectives: Surprisingly Bullish on Volkswagen
Here's where it gets interesting. Despite Mercedes' superior fundamentals, analysts see more upside in Volkswagen - average price target €112.60 implies significant potential from current levels. Mercedes targets range €59.50-59.91, suggesting 11-14% upside. This discrepancy reflects bets on VW's restructuring potential. As Morgan Stanley's Harald Hendrikse explains, "If VW can fix its cost structure through efficiency programs, the upside is massive given depressed valuations." But it's a big "if" - the company must prove it can transition from turnaround story to sustainable profit generator.
China Risk: Achilles' Heel for Both
Both automakers face China headwinds - Volkswagen's Q3 deliveries dropped 7% YoY, while Mercedes' luxury focus makes it equally exposed to softening demand in this crucial market. The difference? Mercedes' fat margins provide cushion. "When Chinese consumers tighten belts, they might delay a Porsche purchase but still buy a Mercedes," notes Bernstein's Daniel Roeska. Volkswagen, already margin-constrained, has less room for error if China weakens further.
Investment Thesis: Turnaround Bet vs Steady Eddie
Ultimately, this is a choice between two distinct propositions. Volkswagen offers speculative appeal - a deep-value play betting on successful restructuring. The stock prices in plenty of bad news, but execution risk remains high. Mercedes presents as a quality compounder - strong cash flows funding reliable dividends with less drama. As veteran investor James Anderson observes, "In turbulent markets, I'll take the company printing cash over the turnaround story nine times out of ten."
Final Verdict: Quality Over Hope
Our October 2025 assessment favors Mercedes for risk-averse investors. Its profitability edge (6.9% vs 4.2% margins), cash generation (€2.4B vs -€0.8B), and dividend reliability (8.21% yield) outweigh Volkswagen's theoretical upside. That said, contrarians might find VW intriguing - if management delivers on efficiency promises, the re-rating potential is substantial. Just don't underestimate the challenges. As the old market saying goes, "Turnarounds turn more often than they around."
Volkswagen vs Mercedes Stock: Key Questions Answered
Which stock has performed better year-to-date in 2025?
Volkswagen's preferred shares gained 2.43% through October 2025, slightly outperforming Mercedes' 0.55% increase. However, Mercedes has shown more resilience over the past 12 months with a 6.72% decline versus steeper drops by competitors.
What are the core differences in their business strategies?
Volkswagen pursues volume through multi-brand scale (4.36M vehicles sold H1 2025) and shared EV platforms. Mercedes focuses on premium/luxury segments (AMG, Maybach) where lower volumes are offset by higher margins (6.9% vs VW's 4.2%).
Which company is more profitable currently?
Mercedes leads significantly - €2.3B EBIT with positive €2.4B cash flow in Q1 2025 versus Volkswagen's €6.7B EBIT (down 33% YoY) and negative €0.8B cash flow. Mercedes' 6.9% operating margin dwarfs VW's 4.2%.
How do their valuations compare?
Mercedes trades at P/E 7.43 and P/B 0.59 with 8.21% dividend yield. Volkswagen lacks current multiples but trades at depressed levels reflecting its challenges. Analysts see 112% upside to VW's €112.60 price target versus 11-14% for Mercedes.
What's the China exposure risk?
Both are vulnerable - VW's Q3 China deliveries fell 7%, while Mercedes relies on premium demand there. Mercedes' higher margins provide better insulation against Chinese slowdowns.
