Business 12 February 2026, 8:11am

Mercedes gears up for a tough year, with cost cuts and dividend reduction

Portfolio

Mercedes is facing a difficult year. The German premium manufacturer has said that margins may stagnate at best this year, while competition from China and tariffs are putting pressure on profitability, Bloomberg reported.

Mercedes-Benz expects its profit margins to remain under sustained pressure in 2026.

The company forecasts an adjusted operating margin of between 3 and 5% for its automotive business. For context, last year's margin was 5%, and it could easily fall below that this year. The outlook is clouded by tariffs and intense competition in the Chinese market.

China remains a key market, although Mercedes sales there fell by around a fifth last year.

Demand for premium vehicles is low in the world's largest car market, while domestic brands are steadily increasing their market share. BYD and Xiaomi, for example, are attracting buyers with well-equipped, competitively priced electric models, which is putting pressure on industry margins.

The company is therefore launching a significant cost reduction programme, which will affect fixed, material and variable costs, including operations in China, until 2027.

This is an unpopular decision for shareholders in the short term, as the company is reducing its dividend from €4.30 last year to €3.50, signalling a more cautious financial approach by management.