Economic sanctions leading to layoffs
Mercedes-Benz Faces Significant Earnings Impact from US Tariffs
In a challenging business environment, Mercedes-Benz, the luxury car manufacturer, has announced a significant impact on its earnings due to US tariffs. The company expects a negative effect of €360-€418 million ($420 million) on adjusted operating profit (EBIT) for 2025, leading to a revised profit margin guidance for the car division of 4-6% return on sales for 2025[1][2][3].
The financial results for the first half of the year show a 56% year-on-year decrease in group net profit for Mercedes-Benz, falling from €6.1 billion to €2.7 billion[1]. The net profit dropped by 69% in Q2 alone, largely due to tariff costs[1].
Mercedes-Benz has chosen not to increase sticker prices on its 2025 models in the US, instead absorbing the additional costs to remain competitive in a market where domestic production for SUVs and electric models somewhat mitigates tariff effects[4]. The company plans to focus on higher-margin luxury vehicles and cost-cutting to offset reduced sales volumes and tariff impacts[1].
The EU tariffs on cars from the US are being reduced from 10% to zero, which is a positive development for Mercedes-Benz. However, the positive effect for Mercedes-Benz resulting from imports from the US to the EU is fairly marginal[5].
CEO Ola Källenius described the financial results as solid, and he expressed respect for "what the EU had to work through" in reaching the agreement with the US[6]. Källenius defended the EU Commission against criticism of the agreement with the United States[7].
The reduction of EU import tariffs to zero is not a gift to the Americans, according to Källenius[8]. He also commented that the increase in cash flow underscores Mercedes-Benz's resilience[9]. The increase in cash flow came as a surprise: free cash flow in the industrial business (excluding financial services) rose by 14.5% to 1.87 billion euros[10].
Two-thirds of the large SUVs produced by Mercedes-Benz at its plant in Tuscaloosa, Alabama, are exported abroad[11]. The company is experiencing significant issues due to increases in tariffs, costs of an efficiency program involving job cuts, and weak business in China[12]. Competition in China is extremely fierce, according to Ola Källenius[13].
In summary, tariffs are a major factor in Mercedes-Benz's lowered earnings outlook in its Cars segment for 2025, directly reducing profitability and depressing profit margins from previous guidance, even as the company seeks to maintain sales competitiveness through pricing and product strategy[1][2][3][4].
References: [1] Reuters. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://www.reuters.com/business/autos-transportation/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-2025-07-29/ [2] Automotive News Europe. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://europe.autonews.com/automakers/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-0 [3] Bloomberg. (2025, July 29). Mercedes-Benz Cuts Profit Outlook as Tariffs Take Toll on Cars Segment. Retrieved from https://www.bloomberg.com/news/articles/2025-07-29/mercedes-benz-cuts-profit-outlook-as-tariffs-take-toll-on-cars-segment [4] Automotive News. (2025, July 29). Mercedes-Benz to absorb tariff costs, not raise prices on 2025 models in U.S. Retrieved from https://www.autonews.com/automakers/mercedes-benz-to-absorb-tariff-costs-not-raise-prices-on-2025-models-in-u-s [5] Automotive News Europe. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://europe.autonews.com/automakers/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-0 [6] Reuters. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://www.reuters.com/business/autos-transportation/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-2025-07-29/ [7] Bloomberg. (2025, July 29). Mercedes-Benz Cuts Profit Outlook as Tariffs Take Toll on Cars Segment. Retrieved from https://www.bloomberg.com/news/articles/2025-07-29/mercedes-benz-cuts-profit-outlook-as-tariffs-take-toll-on-cars-segment [8] Automotive News Europe. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://europe.autonews.com/automakers/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-0 [9] Reuters. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://www.reuters.com/business/autos-transportation/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-2025-07-29/ [10] Automotive News Europe. (2025, July 29). Mercedes-Benz reports higher cash flow for Q2. Retrieved from https://europe.autonews.com/automakers/mercedes-benz-reports-higher-cash-flow-q2 [11] Automotive News Europe. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://europe.autonews.com/automakers/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-0 [12] Reuters. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://www.reuters.com/business/autos-transportation/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-2025-07-29/ [13] Automotive News Europe. (2025, July 29). Mercedes-Benz lowers profit margin guidance due to US tariffs. Retrieved from https://europe.autonews.com/automakers/mercedes-benz-lowers-profit-margin-guidance-due-us-tariffs-0
The financial strain from US tariffs has resulted in Mercedes-Benz adjusting their profit margin guidance for the car division, with a predicted return on sales of 4-6% for 2025. This is a significant decrease from previous expectations and is attributed to increased costs in the industry, notably finance. The preservation of competitive pricing in the business sector, particularly in the US market, has encouraged Mercedes-Benz to absorb the additional costs instead of raising prices on their 2025 models.
