Turbulence in trade policy, unfavorable exchange rate effects, and fierce competition in China are among the factors impacting performance. Yet, over €3.5 billion in savings within the automotive sector helped mitigate the situation.
China’s Downturn Hits Hard
Nearly one in three Mercedes vehicles were sold in China – or, at least, that was the case. In 2025, sales in the region declined by 19 percent.
Of the 2.16 million cars and vans sold 1.8 million came from the passenger car division – a decrease of 9 percent. The once-dominant market is now presenting significant challenges. Local manufacturers such as BYD, Nio, and Xpeng are putting Mercedes under considerable pressure with aggressive pricing strategies and a faster transition to electric vehicles.
Cost-Cutting Program as a Last Resort
The group plans to reduce production and fixed costs by 10 percent by 2027. Material costs are also under review. Simultaneously, a restructuring program is underway for employees in non-production areas.
Mercedes CEO Ola Källenius is attempting to project confidence, stating that the focus is on “efficiency, speed, and flexibility.” The transformation is intended to be driven by competitive models. It remains to be seen whether this will be enough to restore the brand to its former prominence.
“Electric Luxury” Shifts the Leaders
Mercedes finds itself in a classic premium segment trap: while German automakers are still debating platform strategies, Chinese competitors have already captured the electric luxury segment. The 19 percent sales decline in China isn’t an isolated incident, but a symptom of a tectonic shift in power. The reality is that Mercedes has lost its technological edge – and not just in 2025. Delayed electric models, software issues, and pricing that even affluent Chinese consumers are finding challenging to justify are all contributing factors. The cost-cutting program is a necessary step, but it comes too late.
By 2027, BYD and similar companies will have captured even larger market shares. For decision-makers, So that continuing to rely on traditional premium brands ignores geopolitical realities. The modern luxury class comes from Shenzhen, not Stuttgart. Mercedes must undergo a radical restructuring – or resign itself to a niche role.
Why the Decline in China Particularly Affects Mercedes
China is Mercedes’ most important single market, accounting for nearly a third of total sales. The 19 percent drop in sales represents not only a loss of revenue but also indicates a fundamental shift in power: local manufacturers like BYD are offering electric luxury at prices German premium brands cannot match. Mercedes is losing not only market share but also technological relevance.
Can Mercedes Regain Competitiveness Simply by Cutting Costs?
A 10 percent cost reduction helps in the short term, but doesn’t address the core problem: Mercedes is falling behind in software, battery technology, and production speed. Without radical innovation and a faster time-to-market for new electric models, the group remains on the defensive. Saving stabilizes, but doesn’t deliver gains.
What Role Do Trade Tariffs and Exchange Rate Effects Actually Play?
These exacerbate the situation, but aren’t the primary cause. Mercedes cites tariffs and exchange rates as negative factors – however, the massive downturn in China results primarily from a loss of competitiveness. Trade policy becomes a scapegoat for internal failures in electrification and digitalization. The uncomfortable truth: even without tariffs, Mercedes would have suffered massive losses in China.
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