Mercedes-Benz, one of the most prominent car manufacturers in Germany, experienced a significant drop in profit in the first half of 2025.

The company's profit fell by as much as 69 percent in the second quarter, marking a decline from 3.04 billion euros to 957 million euros compared with the same period last year, writes Deutsche Welle. The main reasons for this decline lie in significantly increased U.S. import tariffs, weak sales results in China, and additional costs for implementing cost-saving measures. Looking at the entire first half of the year, total profit fell by 55.8 percent, from 6.1 billion euros to 2.7 billion euros.

The impact of tariffs and weakened markets

Since April 2025, a tariff of 27.5 percent has been applied to imports of Mercedes vehicles into the U.S., which is significantly higher than the previous 2.5 percent. Mercedes did not raise prices to offset this cost, so the result was a direct drop in profit. Analysts estimate that tariffs alone reduced profitability in the passenger vehicle segment by around 360 million euros in the second quarter alone. The operating margin in the company's core business fell to 5.1 percent, while without U.S. tariffs it would have amounted to 6.6 percent.

The decline in sales is most pronounced in the Chinese market, where Mercedes vehicles competed with local electric car manufacturers. In China, the number of vehicles sold fell by 19 percent, significantly more than the global sales decline of 9 percent. Lower demand for luxury products and fierce competition in the electric vehicle segment further worsened the situation for the company.

Targets and cost-saving measures

The results led to a revision of annual forecasts. Mercedes-Benz now expects automotive unit sales this year to amount to around 1.8 million vehicles, noticeably less than last year. Operating profit (EBIT) in the first half fell by an incredible 55 percent, while revenue overall decreased by 8.6 percent, from 72.6 billion to 66.4 billion euros. The company estimates that the annual effect of tariffs will reduce margins in the passenger vehicle segment by 1.5 percentage points. Mercedes management has also launched an ambitious cost-saving program - by 2027, it plans to save five billion euros annually and reduce production and fixed costs by an additional 10 percent. These measures also include reducing thousands of jobs, while avoiding layoffs of production workers through voluntary departures and job reallocation.

Broader economic context and generally known facts

The automotive industry is currently undergoing a deep transformation. Vehicle electrification is leading to major investments, while demand for electric cars is still uneven around the world. China has become the largest and most competitive electric vehicle market, which puts traditional European manufacturers such as Mercedes before major challenges.

The decline in sales of expensive sedans such as the S-Class and Maybach is a consequence of reduced interest in the most expensive models and the emergence of cheaper local alternatives in markets such as China. In addition, global economic uncertainty and geopolitical tensions continuously affect export industries, among which the European automotive industry is particularly sensitive to changes in trade policy.

New trends include an increase in the number of plug-in hybrids and the introduction of advanced infotainment systems and digitalized cabins, which creates a need for additional investment and production restructuring for manufacturers. Luxury car manufacturers are increasingly focused on developing electric models in order to retain relevance in fast-growing markets and meet strict EU regulations related to CO2 emissions.

Despite the challenges, Mercedes as a brand remains synonymous with quality, innovation, and luxury, which may help stabilize business operations in the long term once sales strategies are adapted to new market circumstances.