 |
| The BMW i4 eDrive40 pictured |
As domestic rivals surge ahead, Mercedes faces a 30% sales plunge in its most critical market—and the pain is far from over.
When Mercedes-Benz reported its second-quarter earnings on July 28, the headline numbers told a story of resilience. Group EBIT climbed 22% year-over-year to €1.5 billion. Profits were up. The luxury badge still gleamed.
But beneath the surface, a very different narrative is unfolding—one that has Wall Street analysts and Stuttgart executives deeply worried about the automaker's future in the world's largest car market.
China sales cratered by 30% in the quarter, forcing the German automaker to slash its full-year sales and revenue guidance below 2025 levels—a year when the company was already down 19% in sales in China. For a brand that has long relied on Chinese demand to fuel its global dominance, the numbers represent an existential threat.
A Brutal Numbers Game
CEO Ola Källenius insists Mercedes isn't walking away, telling analysts on the earnings call that it "remains committed to China, focusing on tech products and localization." But commitment alone won't reverse the slide.
Part of that focus includes shifting automotive manufacturing onto Chinese soil, which could reduce overall EV and automotive production costs. CFO Harald Wilhelm affirmed that the automaker "will start production of the China-specific GLE in August" to respond faster to local demand and further localize costs.
It's largely a textbook play: build closer to the customer. But Mercedes' efforts have yet to pay off because the company still hasn't stopped the bleeding involved in the process. Additionally, Wilhelm has already acknowledged that Mercedes' Chinese joint venture reflects lower profit contributions moving forward.
For a deeper dive into what executives said during the earnings call, you can read the full earnings call transcript for Mercedes-Benz's Q2 results, which provides additional color on management's thinking as the company navigates these turbulent waters.
The German Automaker Exodus
Mercedes isn't suffering alone. The entire German automotive establishment is watching its China dreams evaporate.
BMW is seeing a softer sales decline after China deliveries fell 12.5%, while Audi's global boss blames "geopolitical and economic challenges" for a 5% China sales drop—even as the brand continues to set records elsewhere, such as shipping more than 200,000 EVs globally, driven mostly by heavy demand for the Audi Q6 e-tron.
The situation has become so dire that Volkswagen, BMW, Audi, Porsche, and Mercedes are facing a steep decline in EV sales after Beijing ended the EV purchase tax rebate. Combined electric sales across all five companies plunged 55% in the first quarter of 2026—a collapse that has sent shockwaves through the German automotive industry.
China's EV Giants Are Sprinting Ahead
While German automakers scramble to adjust, domestic Chinese EV rivals are accelerating at breakneck speed. Nio is projecting 40–50% sales growth this year, while Xiaomi's EV division has set a massive target of 550,000 deliveries—a 34% increase from its previous annual sales, presumably via its popular SU7 sedan and YU7 SUV.
The contrast couldn't be starker. German brands that once dominated China's premium automotive landscape are now watching from the rearview mirror as homegrown competitors eat their lunch.
What's Really Going On?
Multiple factors are converging to create this perfect storm. The removal of EV purchase tax rebates has made German electric vehicles significantly more expensive for Chinese consumers. Meanwhile, domestic manufacturers have mastered the art of producing feature-rich, technologically advanced EVs at competitive price points—something German brands have struggled to match.
Additionally, shifting consumer preferences among younger Chinese buyers—who view domestic brands as technologically superior and culturally relevant—have eroded the traditional prestige advantage that Mercedes and its peers once enjoyed.
The Road Ahead
Mercedes is attempting to navigate these challenges through aggressive localization strategies and continued investment in China-specific technologies. But the question remains: will it be enough?
For an in-depth analysis of how Mercedes, BMW, and Volkswagen are all struggling with new EVs selling poorly in China, Bloomberg's recent feature provides comprehensive coverage of the challenges facing German automakers in the region.
The next 12–18 months will be critical. If Mercedes can successfully ramp up local production and develop vehicles that truly resonate with Chinese consumers, there may still be a path forward. But if the current trend continues, the brand that was once expected to be the best-positioned German automaker in China's brutal EV market could find itself fighting for relevance in a market it once dominated.
For now, investors and industry watchers are left wondering: can the German automotive giant adapt quickly enough to survive the Chinese EV revolution?