Mercedes CEO Calls for a German Productivity Push as China Slump Erodes Car Profits

Mercedes-Benz used its latest earnings update to send a pointed message about the state of German industry, with chief executive Ola Kallenius calling for a productivity push at home even as the carmaker reported a sharp squeeze on the profits it earns from selling cars. The luxury manufacturer is launching what it describes as a productivity initiative for Germany, arguing that it has to keep cutting costs if it wants to hold the line on prices against cheaper and faster moving rivals.

The backdrop is a business under pressure from several directions at once. Tariffs are adding cost, Chinese competitors are winning customers with inexpensive and technology heavy electric cars, and long established German factories are increasingly expensive to run. Kallenius framed the second quarter as a decent showing given the circumstances, saying the company delivered solid results in spite of the dynamic business environment, from macro and geopolitical headwinds to softer consumer sentiment and intense competition in China.

Profit up at the group, down where it counts

The headline numbers looked reassuring. Group operating profit for the quarter rose 22 percent to about 1.55 billion euros, up from 1.27 billion euros a year earlier, while revenue slipped 3 percent to 32.1 billion euros. Look closer, though, and the strain shows. Adjusted operating profit in the core cars division fell 26 percent to 909 million euros, the clearest sign that the money Mercedes makes from its actual vehicles is thinning as competition bites.

There were bright spots to point to. Electric vehicle sales jumped 51 percent in the quarter to 52,852 units, evidence that the company's push into battery powered models is finding buyers even in a difficult market. Despite a demanding market environment, we remained on track in the second quarter while continuing to advance our product launch programme, Kallenius said, leaning on a wave of new models as the main engine of any recovery.

China is the problem that will not ease

The single biggest drag is China, the largest car market on earth and a place where Mercedes once counted on steady, premium demand. Sales there dropped 30 percent in the quarter as domestic brands pressed their advantage with affordable electric cars packed with the kind of software and screens that increasingly sway Chinese buyers. That reversal is what turned a solid group result into a warning about the health of the cars business.

The pain is not unique to Mercedes. Volkswagen and BMW are wrestling with the same mix of rising tariffs, aggressive Chinese rivals, and costly home production, and all three have been forced to rethink how they build and price their vehicles. For Mercedes, that has meant lowering its expectations for the year, and the company now expects full year 2026 sales to land slightly below the level it managed in 2025.

A push to work harder at home

The productivity initiative is the company's answer to a question German industry has been circling for a while, which is how to stay competitive when costs at home keep climbing. Mercedes says it must keep working flat out to bring expenses down so that it can keep its prices in reach of customers, a message that doubles as a nudge to the broader economy about the need to become leaner and faster.

For Kallenius, the strategy rests on two bets that have to pay off together. New products need to draw buyers back at the top end of the range, and a tighter cost base has to protect what the company earns on every sale. Neither is guaranteed in a market where Chinese manufacturers keep improving and trade barriers keep shifting, but with the profits from its cars sliding, Mercedes has decided that standing still is the one option it cannot afford.