German automaker Mercedes-Benz reported a significant drop in profits for the third quarter as the company grappled with the financial impact of a global restructuring program, declining sales in China, US tariffs, and provisions related to potential mis-selling of car finance in the UK.
Sharp Profit Decline
Between July and September, Mercedes-Benz posted an operating profit (EBIT) of €750 million, down 70% from the same period last year. The figure fell well short of analysts’ expectations, with estimates compiled by Visible Alpha predicting around €1.5 billion in earnings.
Despite the steep decline, Mercedes reaffirmed its full-year guidance and announced it would proceed with a €2 billion share buyback program in November. Investors reacted positively, sending shares up 6% in early Wednesday trading.
Restructuring and Layoffs
The profit slump was heavily influenced by restructuring costs totaling €876 million in the quarter. The overhaul, aimed at streamlining operations and cutting costs, included job reductions in Germany and other markets. Chief Financial Officer Harald Wilhelm said the restructuring effort was “well on track” but did not specify how many positions had been cut so far.
UK Mis-Selling Provision
Mercedes also set aside €422 million to cover potential compensation claims in the UK following an investigation by the Financial Conduct Authority (FCA) into alleged car finance mis-selling practices. The FCA recently outlined a draft redress scheme for affected customers, prompting major automakers to increase their financial provisions.
Pressure from China and the US
The company’s global unit sales fell 12% year on year in the third quarter, driven by a 27% slump in China, where local automakers have been eroding market share from European brands through aggressive pricing and rapid innovation in electric vehicles.
Chief Executive Ola Källenius acknowledged that China’s car market would remain difficult, warning that “hyper-competition” in the country’s automotive sector “is not going away anytime soon.”
Meanwhile, US tariffs introduced by President Donald Trump also weighed on earnings. Wilhelm said the tariffs cut 1.5 percentage points from Mercedes’ operating profit margin, which fell to 1.8% in its core car division. Unit sales in the US declined 17% year on year, although Källenius maintained that the US “remains a growth market” and that adapting to the new tariff landscape would take “a few years.”
Mixed Regional Performance and EV Growth
While sales in China and the US fell, European sales rose 2% in the same period, offering some relief to the automaker. Overall, group revenue dropped 6.9% to €32.1 billion in the third quarter.
Despite short-term challenges, Mercedes-Benz continues to expand its electrified portfolio. Battery-electric and plug-in hybrid vehicles accounted for 21.8% of total sales in the third quarter, supported by the rollout of new all-electric models.
Outlook
Mercedes-Benz remains focused on executing its restructuring plan, optimizing global operations, and accelerating its transition toward electric mobility. While near-term profitability has taken a hit, the company maintains that its long-term strategy — centered on efficiency, innovation, and premium electrification — will restore growth once macroeconomic pressures and trade headwinds ease.
