Mercedes-Benz has issued a stark warning that it expects a “significant” dip in profits this year. In response, the German automaker has unveiled a new cost-reduction strategy as it braces for a possible heavier blow if U.S. President Donald Trump imposes the import tariffs he’s been hinting at.
On Thursday, the Stuttgart-based company projected that its profit margins, which declined to 8.1% in 2024 from 12.6% the previous year, would settle between 6% and 8% in 2025. This forecast doesn’t factor in the potential effect of increased U.S. tariffs, according to Mercedes-Benz’s CFO, Harald Wilhelm. He cautioned that if tariffs on EU exports to the U.S. were hiked from 2.5% to 10%, Mercedes-Benz’s car margins could shrink by up to one percentage point on a gross basis, “before any mitigation” measures are considered.
President Trump sparked further concern on Wednesday by hinting at a 25% tariff on imported vehicles. For Mercedes-Benz, the stakes are high since more than half of the 374,000 vehicles it sold in the U.S. last year came from abroad.
The profit from its car division slumped by 41%, and net profits were down 28% to €10.4 billion last year. Moreover, revenues fell by 5% to €146 billion. Like many of its European counterparts, Mercedes-Benz is grappling with feeble demand at home, compounded by an intense price battle in China, where consumer interest in luxury vehicles like its Maybach limousine has waned. The softened demand for high-priced vehicles in China has particularly impacted Mercedes-Benz, given its strategic shift toward luxury, high-margin models in recent years.
The company’s share price, already down over 11% in the past year, slipped another 3% on Thursday. Mercedes-Benz outlined its approach to tackle lukewarm car demand and stiff competition in China, issues that have already prompted two revisions to its profit forecast last year.
CEO Ola Källenius announced on Thursday the plan to reduce production costs by 10% by 2027 following discussions with the IG Metall union about potential job cuts in Germany. He also mentioned that the company’s strategy includes launching a dozen new models in the coming years, beginning with the new electric CLA. These initiatives aim to rejuvenate sales and bolster profit margins.
Meanwhile, over in France, Renault also issued a profit alert for 2025, citing stricter EU emissions regulations taking effect this year as a potential challenge to its margins. Interestingly, Renault was one of the few European carmakers that didn’t issue a profit warning in 2024. For 2025, it anticipates operating margins of at least 7%, a slight dip from 7.6% in 2024. This adjustment reflects increased efforts to promote electric vehicles and a decline in petrol vehicle sales to meet emissions standards.
According to the regulations effective for 2025, carmakers face harsher penalties for emissions across their lineup as the EU pushes to phase out new combustion engines by 2035. Luca de Meo, Renault’s chief executive, emphasized that “Making EVs the leading technology in Europe is a journey expected to take 20 years,” advocating for more leniency in this transition.
