Mercedes-Benz Shares Rise on Cost-Cutting Success Despite China Sales Slump

Mercedes-Benz Group AG shares rose on Tuesday after the German automaker reported stable second-quarter profits, as aggressive cost-cutting measures successfully countered a significant sales downturn in China and a decline in overall revenue.

The results provided a measure of relief for investors in Germany's auto sector, which has faced mounting pressure from tariff costs and intense competition. Shares in Mercedes-Benz climbed by as much as 5.9% in early trading before settling to a 2.9% gain by late morning, according to Reuters.

Profits Defy Revenue Decline

Despite a 3% drop in revenue, Mercedes-Benz posted a second-quarter operating profit of €1.5 billion ($1.7 billion), a 22% increase year-over-year. The company attributed the strong performance to several factors:

• Reductions in administrative and research & development spending.
• Robust earnings from its financial services and vans divisions.
• A one-time gain of €131 million from the planned sale of its leasing subsidiary, Athlon.

The company's core car business achieved an adjusted return on sales of 4.0%, surpassing forecasts and landing comfortably within its guided range of 3% to 5%.

China Woes Force Outlook Revision

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The positive profit figures were overshadowed by significant challenges in China, the world's largest auto market. Mercedes reported that its car sales in the country slumped by 30% during the second quarter.

This sharp decline prompted the Stuttgart-based manufacturer to abandon its previous forecast for stable full-year car sales and group revenue. The company now anticipates a slight decline in both metrics compared to the previous year. Chief Financial Officer Harald Wilhelm also noted that the full-year margin for the car division is expected to be at the lower end of its forecast range, partly due to a higher sales mix of more expensive-to-produce electric vehicles in Europe.

Intensified Cost Controls and Competition

In response to the challenging market, Mercedes is intensifying its efficiency drive. The company confirmed plans for further cost-saving measures at its German factories and is expanding production in lower-cost locations, including Hungary and Poland. "We must continue to work flat out to reduce costs so that we can remain competitive on the prices of our products," said CEO Ola Kaellenius.

The strategic shift comes as Chinese competitors, having gained market share in their home country, are increasingly exporting vehicles to Europe. Kaellenius acknowledged the threat, stating that while these new entrants are currently focused on volume markets rather than Mercedes' premium segment, it is "not a reason to sit back and be relaxed."