The premium collapse: Shocking figures at Mercedes – Why operating profit plummets by 70 percent
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Published on: October 29, 2025 / Updated on: October 29, 2025 – Author: Konrad Wolfenstein
The premium collapse: Shocking figures at Mercedes – Why operating profit plummeted by 70 percent – Image: Xpert.Digital
Almost a third less: This is how much Mercedes is suffering from tariffs and staff reductions.
Premium crisis? Mercedes suffers significant losses in its most important market, China.
Premium car manufacturer Mercedes-Benz is under immense pressure, and its third-quarter figures provide painful evidence of the difficult global market conditions. The company suffered a dramatic drop in profits, primarily due to challenges in China and the geopolitical situation.
Taking into account special factors such as the high costs of the ongoing staff reduction, operating profit plummeted by a shocking 70 percent compared to the previous year, to just 750 million euros. Adjusted operating profit also fell sharply, by 17 percent, to 2.1 billion euros.
The main reasons for this development are multifaceted: In addition to massive sales declines in its most important market, China, the balance sheet is primarily burdened by increased expenses triggered by import tariffs in the USA and unfavorable exchange rates. Mercedes-Benz is also struggling with increasingly aggressive competition from local brands and emerging electric car manufacturers, which are eroding its market share in China.
Despite the deep losses and the decline of almost a third of operating profit, CEO Ola Källenius remained composed. He reaffirmed that the results were in line with the forecast for the full year. Mercedes-Benz continues to expect a significant decline in sales, revenue, and pre-tax profit, but remains firmly committed to its strategic goals for the long-term realignment of the company.
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When German engineering meets Chinese market dynamics: The end of the automotive world order
The quarterly figures read like the beginning of the end of an era. Mercedes-Benz, the brand that for a century stood for German engineering and automotive luxury, reports a profit slump of seventy percent. Adjusted operating profit plummeted to 750 million euros in the third quarter of 2024 – a fraction of what analysts would have considered impossible just two years ago. But these figures represent far more than the cyclical weakness of a single company. They mark a fundamental break in the global automotive industry, the repercussions of which will shape the world economy for years to come.
The transformation is hitting the entire German automotive industry with brutal force. Audi's profits plummeted by 33 percent in 2024, BMW's by 37 percent, and Volkswagen's by 31 percent. These almost identical declines of around 30 percent are no coincidence, but rather the expression of a structural shift that goes far beyond cyclical fluctuations. What is happening here is nothing less than a global reorganization of automotive value creation – and Europe risks becoming the loser in the process.
From economic miracle to structural crisis: The historical development of Germany's automotive power
For decades, the German automotive industry was considered the backbone of the export nation. After the Second World War, Mercedes-Benz, BMW, and later Volkswagen established a business model based on technological excellence, engineering prowess, and the ability to command premium prices for quality. This premium strategy became a guarantee of success: while volume manufacturers struggled with thin margins, German manufacturers achieved returns of fifteen percent and more.
This dominance was based on several pillars. First, German manufacturers controlled the entire value chain of the internal combustion engine – from the development of highly complex units and precise manufacturing technologies to their integration into vehicles. A car with an internal combustion engine manufactured in Europe boasted a local value creation of 85 to 90 percent. Second, close integration with a high-performing supplier network enabled rapid innovation cycles. Third, the Chinese market offered explosive growth from the 2000s onward: nowhere else were consumers willing to spend such sums on premium vehicles.
From 2022 onwards, Mercedes-Benz consistently pursued a luxury strategy. Under CEO Ola Källenius, the portfolio was divided into three categories: Entry Luxury, Core Luxury, and Top-End Luxury. The idea was that by focusing on the high-margin, top-of-the-range models – S-Class, Maybach, G-Class, AMG – over 75 percent of development investments would flow into this segment, increasing its sales share to 60 percent. Initially, the strategy seemed to be working. In 2021, Mercedes recorded record sales with its top-end vehicles.
But then the foundation crumbled. The Chinese market, where Mercedes generated a third of its sales, collapsed. Sales of the passenger car division in China fell by seven percent in 2024, and by a staggering 27 percent in the third quarter of 2025. At the same time, sales of luxury vehicles like the S-Class plummeted by 14 percent. US import tariffs under President Trump further burdened the results with a mid-three-figure million-euro loss. And the electric vehicles, on which Mercedes had pinned its hopes, sold 23 percent worse than the previous year. In October 2025, Källenius backtracked: The loaded term "luxury" was to be largely removed from the strategy. Too late.
Tectonic shifts: drivers, actors and the new market order
The crisis in the German automotive industry is the result of several mutually reinforcing tectonic shifts. Foremost among these is the rise of Chinese manufacturers to technological leaders. What was long dismissed as "cheap competition" has proven to be a fundamental miscalculation.
BYD, the world's largest electric vehicle manufacturer, produces 75 percent of its components in-house – from battery cells and semiconductors to electric motors. This vertical integration gives the company an estimated 30 percent cost advantage over its competitors. In the first half of 2025, BYD sold over two million vehicles, a growth of 31 percent. Geely increased its operating profit by 48 percent, achieving a profit margin of 5.5 percent. The Chinese automotive market continued to grow in 2024, but Western manufacturers did not contribute to this growth.
Chinese manufacturers' development cycles are 18 to 24 months – less than half the time required by European manufacturers. An electric vehicle produced in China costs around a third less to manufacture than a comparable European model. Chinese premium brands like ZEEKR, Denza, and NIO are constantly outdoing each other with technological features while simultaneously drastically reducing prices. Western manufacturers can no longer compete in this arena.
The second shift concerns electromobility itself. The transition from the combustion engine to the electric motor fundamentally changes value creation structures. An electric motor consists of approximately 200 parts, while a combustion engine has over 2,000. The battery accounts for 30 to 40 percent of the vehicle's cost, yet Germany and Europe have largely lost this value creation to China. Over 90 percent of global lithium production capacity is in Chinese hands. The semiconductors, which play a central role in software-defined vehicles, also come predominantly from Asia.
Thirdly, the balance of power is shifting due to the digitalization of vehicles. Software is becoming the central driver of value creation. Vehicles generate 25 gigabytes of data per hour. Over-the-air updates, cloud-based services, and autonomous driving functions are redefining product differentiation. Here, Tesla and Chinese manufacturers have a head start of several years. German manufacturers are struggling with delayed software projects and a lack of integration.
The fourth shift is geopolitical in nature. In April 2025, the US under President Trump imposed import tariffs of 25 percent on vehicles not produced in the US. In August 2025, this rate was reduced to 15 percent as part of a deal, but the burden remains considerable. For the German automotive industry, which exported vehicles worth 35 billion euros to the US in 2024, this represents a loss of billions. The EU also imposed tariffs on Chinese electric vehicles, but Chinese manufacturers are responding by establishing production facilities in Europe.
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Real-time crash: The current state of the automotive industry
The figures for 2024 and the first months of 2025 paint a bleak picture. The average EBIT margin of 14 global automakers fell to 6.3 percent in 2024, a decline of 20.5 percent compared to the previous year. In the first half of 2025, it fell further to 4.3 percent, with operating profits plummeting by over 40 percent. The margin decline was particularly dramatic at Stellantis (from 11.8 to 2.6 percent) and Nissan (down 74 percent).
At Mercedes-Benz, the adjusted return on sales in the third quarter of 2024 was just 4.7 percent. Adjusted EBIT fell by 48 percent to €2.5 billion. BMW recorded a profit decline of 37 percent, with the EBIT margin dropping from 9.7 to 6.3 percent. At Audi, profits plummeted by 33 percent. Porsche, once the profit engine of the VW Group with margins of 15 percent, reported an operating loss of €967 million in the third quarter of 2025 – the highest in the company's history.
Sales by German manufacturers shrank in parallel. Mercedes sold 1.98 million passenger cars worldwide in 2024, a decline of three percent. In China, sales fell by seven percent, and for electric vehicles by as much as 23 percent. In the third quarter of 2025, the sales decline accelerated to twelve percent. The entire German automotive industry produced almost four percent less in 2024 than in the previous year, and revenue fell by five percent.
Employment is in free fall. In 2024, the German automotive industry lost 51,500 jobs; since 2019, the figure has already reached 112,000. A further 90,000 to 98,000 jobs could be lost by 2030. As part of its "Next Level Performance" savings program, Mercedes plans to achieve cost savings of five billion euros by 2027. Up to 20,000 jobs are to be cut worldwide. Around 4,000 employees have already accepted severance packages, with some executives receiving up to 500,000 euros.
Overcapacity is exacerbating the crisis. In Western Europe – Germany, France, Italy, and the UK – automotive plants are operating at only 54 percent capacity. Volkswagen announced the closure of two plants. Global automotive production is not expected to reach pre-pandemic levels again until 2028 – with Chinese manufacturers gaining increasing market share.
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Mercedes in transition: How Chinese manufacturers are undermining Germany's premium strategy
Contrasting Strategies: Germany versus China – A System Comparison
A comparison between German and Chinese automakers reveals fundamental differences in strategy, structure, and government support. While German manufacturers focus on the evolutionary adaptation of their existing business models, Chinese companies pursue disruptive approaches based on systematic overinvestment and rapid scaling.
Mercedes-Benz embodies the German approach: a focus on premium segments, gradual electrification alongside its combustion engine offerings, and an emphasis on brand values such as quality and luxury. This strategy aims to defend high margins, even if it means lower sales volumes. The concept worked as long as affluent customers in China were willing to pay a premium for the three-pointed star. But this willingness is waning. Chinese high-end electric vehicles now surpass German premium brands in terms of technology, features, and value for money. Young buyers clearly prefer local brands.
BYD represents the Chinese alternative. The company will produce over 3.6 million vehicles in 2024, has catapulted itself into the top four manufacturers worldwide, and is growing at a rate of 31 percent annually. Its strategy: vertical integration across the entire value chain, aggressive price reductions through cost advantages, parallel development of several brands for different segments (BYD, Denza, Yangwang), and rapid expansion into Europe with the construction of factories in Hungary, Turkey, and potentially Germany.
Geely pursues a portfolio approach. The group holds stakes in Mercedes, Volvo, Polestar, and Aston Martin. It markets vehicles in different price segments through various brands – Geely, Zeekr, and Lynk & Co – and increased its operating profit by 48 percent in 2024. This diversification strategy provides Geely with market access, economies of scale, and technological knowledge transfer.
The role of the Chinese state is crucial. Massive subsidies for battery production, electric vehicles, and charging infrastructure have built up the industry. Systematic control over raw material supply chains—from lithium and cobalt to rare earth elements—ensures strategic independence. The focus on New Energy Vehicles (NEVs) as state policy has created a domestic market in which 50 percent of all vehicles sold were electrified by 2024.
Germany, on the other hand, is struggling with regulatory uncertainties, fluctuating subsidy policies, and fragmented approaches. The abolition of the purchase premium for electric vehicles caused sales to plummet. The expansion of the charging infrastructure is lagging behind demand. While China is pursuing a deliberate, integrated strategy encompassing industrial policy, infrastructure, and market development, Europe is reacting to demand.
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Disruptions and conflicting goals: The downsides of transformation
The transformation of the automotive industry is producing massive social and economic disruptions. The employment effects are dramatic. While new jobs are being created in IT, software development, and battery production—IT employment in the German automotive industry has grown by 25 percent since 2019—these gains do not even come close to compensating for the losses. Suppliers specializing in combustion engine components are particularly affected. Of the ten largest occupational groups in the automotive industry, seven have experienced the greatest job losses since 2019. Occupations in mechanical engineering, plant engineering, and metalworking are losing significant relevance.
The regional dimension exacerbates the problem. 36 districts in Germany are particularly threatened by the automotive crisis. In regions like Baden-Württemberg, where the automotive industry traditionally dominates, structural changes are looming. The social safety net for the transformation process remains unresolved. While Mercedes is offering severance packages and job guarantees until 2034, smaller suppliers cannot provide such security.
At the same time, fundamental conflicts of interest are emerging. The EU aims for climate neutrality by 2050 and is relying on strict CO2 fleet limits. However, the transformation to electromobility is swallowing up investments of hundreds of billions of euros and massively impacting profits. Porsche had to delay the introduction of fully electric models and is returning to combustion engines, incurring special costs of 3.1 billion euros. The two-pronged strategy – the parallel development of combustion engines and electric vehicles – is causing costs to skyrocket.
Dependence on China carries geopolitical risks. Europe has largely lost battery production. If Europe fails to localize 75 percent of battery value creation, it could lose $400 billion in added value by 2035. This vulnerability is evident in the current chip crisis: even for the simplest components, the industry is dependent on Asian suppliers.
The question of the right drive technology is also controversial. While the EU is focusing on battery-electric vehicles, parts of the industry warn against unilateral commitment. Charging infrastructure remains a challenge. Germany needs between 380,000 and 680,000 publicly accessible charging points by 2030; by 2035, this number could exceed one million. Expansion is expensive, and profitability for operators is often lacking. Charging points are scarce in rural areas, and range anxiety remains a significant obstacle.
The wave of consolidation facing the industry will claim further victims. With shrinking margins and increasing price pressure, not all manufacturers can survive. In China, over 100 car brands compete; in the long run, only five to twenty will survive. A similar scenario threatens Europe. Stellantis and Nissan are already facing existential crises. German industry faces a choice: drastic cost-cutting and capacity reduction, or further loss of market share.
Disruptive scenarios: Possible development paths until 2035
The future of the European and especially the German automotive industry can be depicted in three scenarios, which McKinsey has outlined in a study.
In the disruptive scenario, new market entrants – primarily Chinese manufacturers – dominate the European market. The domestic market share of European manufacturers falls from 60 percent (2023) to 45 percent (2035), and exports decline by 40 percent. Europe produces 20 to 25 percent fewer vehicles, while imports increase by 1.2 million units. Gross value added falls by €365 billion. This scenario would result in the loss of over one million jobs, and two-thirds of planned battery investments would be at risk.
The baseline scenario, with its ambitious plans, assumes that European manufacturers can largely maintain their market share if they invest decisively in electromobility and improve their competitiveness through efficiency gains. In this scenario, value creation could easily rise to $2.2 trillion by 2035. However, this would require massive investments in battery production, software development, and charging infrastructure. By 2030, 900 GWh of battery capacity would need to be developed in Europe, and the charging infrastructure would need to increase fivefold by 2035.
In an optimistic scenario, with full potential realized, Europe, through coordinated industrial and demand-side policies, will not only defend its market share but also increase production to the pre-crisis level of 16.8 million vehicles annually. Employment could be maintained at current levels if job losses in vehicle production are offset by over 100,000 new jobs in battery manufacturing by 2030 and 120,000 in charging infrastructure by 2035.
Which scenario unfolds depends on several factors. First, on the ability of European manufacturers to catch up in software development and digitized vehicle architectures. The software-defined vehicle is the future, but German manufacturers are struggling with project delays. Second, on industrial policy. If the EU maintains its fleet-wide CO2 emission limits while simultaneously promoting production and demand, opportunities exist. A relaxation of these targets, however, would lead to market losses.
Third, geopolitical developments are crucial. If trade conflicts with the US and China escalate further, global markets risk fragmentation. German manufacturers would then have to produce locally in all regions, reducing economies of scale and increasing costs. Fourth, industry consolidation will change the competitive landscape. Weak manufacturers will be acquired or disappear, and overcapacities will have to be reduced.
An additional uncertainty is the speed of the transition to autonomous vehicles. Level 4 automation could be implemented in 47 percent of heavy trucks by 2030, while Level 5 passenger cars will not be available in series production until 2035 at the earliest. Autonomous mobility would once again revolutionize business models, shifting from hardware sales to Mobility-as-a-Service. Here, technology companies and Chinese manufacturers have a head start.
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Turning point or endgame: Strategic implications for politics and economics
The crisis at Mercedes-Benz and the German automotive industry is far more than a sector-specific problem. It marks a turning point in the global industrial order. The question is not whether the balance of power will shift, but how significant that shift will be and whether Europe will still play a relevant role in this new order.
For business leaders, this means the era of gradual adjustments is over. Radical decisions are necessary. Mercedes realized too late that its luxury strategy doesn't work in a market where Chinese manufacturers offer superior technology at lower prices. The return to a broader strategy is late, but it's inevitable. Other manufacturers face similar dilemmas: withdrawing from unprofitable segments, focusing on core competencies, or merging with competitors.
Vertical integration needs to be reassessed. Dependence on Asian battery manufacturers and semiconductor producers is strategically risky. Europe urgently needs its own production capacity. The announced battery factories are a start, but not enough. At the same time, automakers must transform into software companies. This requires a cultural shift, new skills, and partnerships with tech giants.
This presents policymakers with a dilemma. On the one hand, tariffs and protectionist measures can protect domestic producers in the short term. On the other hand, they accelerate the relocation of Chinese production to Europe. BYD, Chery, and Geely are already building factories in Hungary, Spain, and Turkey, and are planning further locations. These plants will operate with lower labor costs than German sites and will benefit from EU subsidies.
An effective industrial policy would need to include several elements. First: planning certainty through reliable regulatory frameworks. The constant changes to purchase incentives and subsidies create uncertainty for both consumers and manufacturers. Second: massive investments in charging infrastructure and grid expansion. Investments in the hundreds of billions are needed by 2035. Third: promotion of research and development in key technologies such as batteries, semiconductors, software, and artificial intelligence.
Fourth: social mitigation of the transformation. The retraining of hundreds of thousands of workers from combustion engine production cannot be left to the companies alone. Fifth: strategic raw materials policy. Europe must secure access to critical materials and build up recycling capacities to reduce its dependence on China.
A clear picture is emerging for investors. The valuations of German automakers have plummeted for good reason. Mercedes, BMW, and VW are trading at significant discounts compared to their historical valuations. This reflects the uncertainty surrounding their future viability. At the same time, opportunities are emerging. Companies that successfully manage the transformation will benefit in the long term. Suppliers focusing on electromobility and digital components have growth prospects. Battery companies, charging infrastructure operators, and software providers for the automotive industry will be among the winners.
The long-term importance of this issue can hardly be overstated. The automotive industry contributes almost eight percent to European GDP, and over three million people in Germany work directly or indirectly for the sector. Its decline would weaken Europe economically and geopolitically. Conversely, a successful transformation could strengthen competitiveness and open up new growth areas.
What is happening at Mercedes-Benz is symptomatic of a deeper crisis: the end of an era in which Europe set industrial standards and technological leadership was taken for granted. The new world order will be dominated by other players – unless Europe radically changes course. The figures from Stuttgart are more than a warning signal. They are the beginning of a reorganization whose outcome is still uncertain. But time is running out.
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