Company Reports

In 2022, Mercedes introduced its "economics of desire" strategy, aiming to position itself as a luxury goods company by exiting lower-margin entry-level models and steadily expanding its high-end offerings. The objective was to develop a brand portfolio strong enough to enable pricing power across all economic and market conditions. This has not played out, with brand value shrinking in its previously highest-profit region, China.

Mercedes-Benz has taken a large impairment on its Chinese joint venture. The 20% contraction in the Chinese market hit its full-year top-line growth, but it is constructive that the profitability outlook is unchanged on strong cost control and a strong financial services business.

In 2022, Mercedes introduced its "economics of desire" strategy, aiming to position itself as a luxury goods company by exiting lower-margin entry-level models and steadily expanding its high-end offerings. The objective was to develop a brand portfolio strong enough to enable pricing power across all economic and market conditions. This has not played out, with brand value shrinking in its previously highest-profit region, China.

Following Daimler Truck's spinoff in December 2021, the remaining car, van, and mobility businesses were rebranded as Mercedes-Benz Group. In 2022, Mercedes introduced its "economics of desire" strategy, aiming to position itself as a luxury goods company by exiting lower-margin entry-level models, maintaining the core lineup, and steadily expanding its high-end offerings. The objective was to develop a brand portfolio strong enough to enable pricing power across all economic and market conditions. Even though Mercedes has made some progress in the variety of products it offers, it hasn't led to an increase in profits.

Mercedes reported first-quarter car revenue and EBIT declines of 5% and 47%, respectively, with underlying return on sales within the guided range. A 6% decline in car deliveries was a key drag, reflecting regional diverging trends between China and Western markets.

Mercedes’ car revenue fell 9% and adjusted EBIT dropped 45% in 2025 as pricing pressure, currency, and tariffs compounded a 9% volume decline. Cost savings of roughly EUR 3.6 billion partly cushioned profitability. The car midterm margin target was adjusted to 8%-10% from 10% to reflect tariffs.

The European Union has softened its emission-reduction targets for the auto sector and initiated support for electric vehicle demand. By 2035, carmakers need to reduce emissions by 90%, down from the previous 100% target. For vans, the CO2 reduction target has been cut to 40% from 50% by 2030.

Following Daimler Truck's spinoff in December 2021, the remaining car, van, and mobility businesses were rebranded as Mercedes-Benz Group instead of Daimler. At the same time, Mercedes introduced its "economics of desire" strategy in 2022, aiming to position itself as a luxury goods company by exiting lower-margin entry-level models, maintaining the core lineup, and steadily expanding its high-end offerings. The objective was to develop a brand portfolio strong enough to enable pricing power across all economic and market conditions. Even though Mercedes has made some progress in the variety of products it offers, it hasn't led to an increase in profits.

Mercedes' car division reported revenue and adjusted EBIT decline of negative 7% and negative 6%, respectively, and a return on sales of 4.8%, a slight improvement on 2025. A stronger product mix offset a decline in volume of 12%. Cost savings offset US tariffs and negative foreign-exchange effects.

Mercedes expects a return to sales growth from 2027 as its product launch program gains momentum.

Following Daimler Truck's spinoff in December 2021, the remaining car, van, and mobility businesses were rebranded as Mercedes-Benz Group instead of Daimler. At the same time, Mercedes introduced its "economics of desire" strategy in 2022, aiming to position itself as a luxury goods company by exiting lower-margin entry-level models, maintaining the core lineup, and steadily expanding its high-end offerings. The objective was to develop a brand portfolio strong enough to enable pricing power across all economic and market conditions. Even though Mercedes has made some progress in the variety of products it offers, it hasn't led to an increase in profits.

Mercedes-Benz car revenue and adjusted EBIT declined 11% and 56% in the second quarter, respectively, with a margin of 5.1%. Excluding tariffs and foreign exchange, adjusted EBIT margins of 6.6% and 8.3% would have been achieved, respectively, in line with original guidance. Free cash flow rose 9%.

The European Union and the US have reached a trade deal, setting the baseline tariff rate at 15% for imports from the EU, including autos.

Mercedes reported revenue and EBIT declines of 7% and 41%, respectively, at the lower end of full-year guidance. If tariffs as of April 28 remain for the full year, guidance for midpoint EBIT margins reduce from 7% to 4% for cars and from 11% to 9% for vans. This excludes secondary market effects.

Following the spinoff of Daimler Truck in December 2021, the remaining car, van, and mobility businesses were rebranded to Mercedes-Benz Group from Daimler. Simultaneously, Mercedes launched its "economics of desire" strategy in 2022 with the intention of positioning itself as a luxury goods company by exiting lower-margin entry-level models, maintaining the core range, and consistently expanding its high-end portfolio. The goal was to create a brand portfolio strong enough to command pricing power through all market and economic environments.

On April 2, US President Trump reaffirmed the implementation of a 25% worldwide import tariff on all automobiles and automobile parts imported into the US, with the exceptions related to the United States-Mexico-Canada Agreement, as initially announced on March 26. The automobile industry will not be subject to the reciprocal tariffs announced on April 2. Thus, we reaffirm our estimate of a negative impact of between 20% and 30% on our fair value estimates for no-moat auto original equipment manufacturers resulting from these tariffs. Despite the downward revisions under this scenario, we continue to believe that there is a sufficient margin of safety at current prices, as shares trade at a significant discount to our valuations. BMW and Mercedes export approximately 50% of their US production, which may be affected by retaliatory tariffs, possibly increasing the negative impact on our fair values.

US President Donald Trump announced a blanket 25% tariff on all auto imports, effective April 2, after the March 26 European market close. Thus far, the tariffs are said to be "permanent," apply to imports from all countries equally, and apply to both final vehicle imports as well as parts. Vehicles that meet the United States-Mexico-Canada Agreement trade terms will only have tariffs levied on the non-US parts. These tariffs are stated to be in addition to any other tariff that may come in the future. The share prices of US and Japanese automakers largely traded lower by midsingle digits on the news, and we expect the same from European automakers. As per our March 5 note, we expect a negative 20%-30% impact on our fair value estimates on a permanent tariff of this size. For now though, we leave our valuations unchanged as we assess the likelihood of tariff permanence and the impact of likely reciprocal actions by the European Union. There is enough margin of safety at current prices for investors, as shares trade at deep discounts to our valuations.

US President Donald Trump announced a one-month reprieve on March 5, 2025 for automakers from the 25% blanket import duty imposed on goods imported from Mexico and Canada. The delay to automakers, negotiated by Detroit's Big Three—Ford, General Motors, and Stellantis—aims to equalize the playing field among automakers importing vehicles into the US from countries other than Mexico and Canada that are not yet paying tariffs, and to provide time to initiate the process of moving production into the US. Under the scenario where this import duty is made permanent, it will materially affect the financial outlook for most of our European auto original equipment manufacturer coverage. We estimate it will reduce our fair value estimates by between 20% and 30% for no-moat Stellantis, BMW, Mercedes, and Volkswagen. Given the uncertainty around the quantum or duration of tariffs, we maintain our fair value estimates for now.

The EU Commission released its automotive industry action plan on March 5. While we commend the flexibility provided for carbon dioxide targets, we think the remaining proposals lack details, timelines, and regulatory enforcement. The positive share price moves of the European auto original equipment manufacturers appear to reflect the reversal of expected CO2 emission penalties. We make no changes to our fair value estimates for the European automakers.

The European Union launched a strategic analysis on how to safeguard the future of the European automotive industry on Jan. 30. The results of this investigation are expected to be released on March 5. The investigation aims to provide the industry with support to curtail accelerating job losses and declining contribution to the European Union's gross domestic product. In contrast to the Chinese auto industry, which has soared because of a focused and coordinated regulatory framework, European policy has been contradictory and uncertain in particular areas. We believe European auto industry stocks are pricing in worst-case scenarios and therefore trading at deep discounts to their fair values. We see potential short-term and longer-term profitability improvements to result from a supportive and coordinated regulatory policy.