Mercedes Profit Plummets 57% in 2025: $1.2 Billion Tariff Hit and Weak China Sales Crush Earnings

Luxury automaker Mercedes-Benz just slammed into a financial wall—hard. Their 2025 profit cratered by more than half, a direct result of two massive headwinds that even three-pointed-star engineering couldn't outmaneuver.

The Double Whammy

First, a staggering $1.2 billion in tariffs sliced into the balance sheet. That's not a rounding error; it's a direct hit to the bottom line from global trade tensions turning costly. Second, the crucial Chinese market—a longtime profit engine for luxury brands—sputtered. Demand softened, leaving inventories high and margins thin. Combine geopolitical friction with a cooling powerhouse economy, and you get a 57% profit drop.

Legacy on the Backfoot

It's a stark reminder: even the most iconic legacy brands aren't immune to macro shocks. While they're busy navigating tariffs and pleading for market share, decentralized finance protocols operate 24/7, borderless and tariff-free. A cynical observer might note that their quarterly loss could have bought a lot of blockchain—infrastructure that doesn't get held up at customs.

The road ahead requires more than a new model year; it demands a fundamental rethink of global strategy in an increasingly fragmented world. The era of easy global profits is in the rearview mirror.

Mercedes reports full 2025 financial results across all divisions

The cars division took the biggest punch. Adjusted EBIT at Mercedes Cars fell to €4.8 billion from €8.7 billion. Revenue dropped 10.5% to €96.4 billion. Unit sales declined 9.2% to 1,801,291 vehicles.

Battery electric vehicle sales fell 8.8% to 168,823 units. Electrified vehicles overall reached 368,700 units, barely above last year. The xEV share ROSE to 20.5% of total sales from 18.5%.

Adjusted return on sales at Mercedes Cars landed at 5.0%, down from 8.1%. Without tariffs it WOULD have been 6.1%. Cash flow before interest and taxes dropped to €5.2 billion. The adjusted cash conversion rate improved to 1.2. Research and development spending declined year over year, while investments in property, plant and equipment increased due to new product launches. Cost savings under the Next Level Performance plan added more than €3.5 billion to EBIT.

The vans division at Mercedes delivered an adjusted return on sales of 10.2%. That was lower than 14.6% in 2024 but still double digit. Unit sales fell 11.5% to 359,136 vans.

Fully electric van sales jumped 46% to 28,488 units. BEVs made up 7.9% of global van sales and 11% in Europe. Revenue declined 11.2% to €17.1 billion. Adjusted EBIT reached €1.75 billion. Cash flow before interest and taxes fell to €951 million.

Mercedes Financial Services reported adjusted EBIT of €1.27 billion, up from €1.13 billion. Adjusted return on equity improved to 9.7% from 8.7%. Total portfolio volume stood at €128.8 billion, down from €138.1 billion.

New business reached €55.9 billion. Revenue in the unit slipped 1.8% to €24.6 billion. The finance arm merged with vehicle sales at the end of December 2025 to FORM a single customer-focused structure.

Mercedes accelerates product launches and outlines cost cuts through 2027

In 2025, Mercedes launched the all-new CLA at the start of the year and ended the year with the new GLB and GLC. The CLA won Europe’s Car of the Year 2026 and Euro NCAP’s Best Performer among 2025 tested vehicles. Order books stretch well into the second half of 2026. Production runs on three shifts in some plants. Quarterly BEV volumes improved as the year went on.

The upgraded S-Class now includes a new V8 engine and the MB.OS operating system. The model carries an updateable MB.OS Supercomputer, fourth-generation MBUX, and MB.DRIVE ASSIST PRO point-to-point assisted driving. China gets the system first, with the United States following later in 2026.

Chief executive Ola Källenius said, “We successfully kicked off our biggest ever product and tech launch program in 2025. We are launching more than 40 new models in three years.”

Looking ahead, Mercedes expects 2026 group revenue to match 2025 levels. Group EBIT should come in significantly above 2025. Free cash flow from the industrial business will likely sit slightly below 2025.

Adjusted return on sales for cars is guided between 3% and 5%. Vans are guided at 8% to 10%. Financial Services return on equity is seen between 10% and 12%.

Medium term, Mercedes targets around 2 million vehicle sales, with more than a 15% increase in Top-End sales and a doubling of xEV share. Global production capacity will be adjusted to about 2.2 million units by 2028.

Assembly at the COMPAS joint venture in Mexico ends in 2026. Germany capacity will be 900,000 units and Hungary up to 400,000 units.

Production costs per unit are set to fall 10% from 2027 versus 2024. Fixed costs should drop 10% between 2024 and 2027. Material cost savings are targeted at 8% by 2027 and 10% beyond that.

In China, Mercedes aims to cut local material costs by 10%, variable production costs by 20%, and fixed costs by 20% by 2027 through local partnerships including Momenta and ByteDance.

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