Mercedes-Benz Bets on China-Specific SUVs and Cheaper Builds to Rescue a Halved Margin
Published on 11/11/2026 at 13:21 | Editorial boerse-global.de
Mercedes-Benz has a profitability problem that no single new model can solve, and Ola Källenius used a Berlin stage to say so. Speaking at the Automobilwoche congress, the group chief executive called for products tailored more closely to Chinese buyers and for costs pushed down toward Chinese levels — an admission that the world's largest car market has turned against the premium segment faster than the company expected.
The numbers behind that shift are stark. China's car market has contracted 22% since the start of the year, and in the premium and luxury segment the decline reaches 30%. Källenius said the slump has been sharper than forecast in the spring, and he declined to say whether the market would grow again next year. Planning has become less reliable than it once was, he added.
His answer is twofold. Mercedes intends to sharpen its lineup around Chinese customer tastes, with large SUVs singled out as a priority, while driving costs down to local benchmarks. The overhaul touches both the business model and the company's operating systems, according to Källenius. Beyond serving the domestic market, China is also meant to become a development hub for the world — to the extent that geopolitical restrictions allow, a caveat he attached explicitly.
A Margin That Nearly Halved
The urgency shows up in the third-quarter 2026 figures. Adjusted return on sales in the passenger-car division fell to 2.5% from 4.8% a year earlier. Mercedes blamed tougher competition in China, unfavorable exchange rates and the expense of launching new models. Adjusted operating profit slipped 15% to EUR 1.78 billion over the same period.
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Those pressures explain why a long-term supply deal announced this week matters mostly as a test of operational strength. Mercedes has signed a multi-year primary aluminium agreement with Hydro covering at least 10% of its primary aluminium needs and running beyond 2030. The supplier's material emissions are set to fall from roughly 4 kg CO?e per kilogram today to 3.5 kg by 2028, and to 3 kg from 2030. Hydro CIRCAL, which draws heavily on aluminium recycled from consumer products, will enter future Mercedes models from 2027.
The contract gives part of the material pipeline a firm footing. Whether that translates into value depends on whether procurement, model launches and demand move in the same direction.
Cash Is the Binding Constraint
Free cash flow from the industrial business tells the harder story. It collapsed 87% to EUR 172 million in the third quarter of 2026, a drop Mercedes attributed to temporarily built-up inventories of new vehicles. Until those stocks are worked down, the company has limited room to fund product and material programs at the same time. A slower unwind would make financing both considerably harder.
On the product side, management is hedging its bets. The planned lineup spans 40 models over three years, mixing electric vehicles with combustion-engine cars, with new vehicles due from 2027. Källenius, speaking at a media meeting in Pune, said combustion engines would remain in use for at least ten and possibly fifteen years, and that Mercedes is developing petrol and diesel units to Euro 7 standards, with the offering dictated by demand.
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That approach sits comfortably alongside the aluminium deal in the best case: lower-emission materials secured, powertrain options kept open, and a recovering car margin to pay for it all. In the worst case, a weak margin and persistent inventory build-up leave a long-term sourcing strategy resting on a business that generates little spare cash.
Investors get their next hard data point on 18 February 2027, when fourth-quarter results are due. The passenger-car margin and industrial cash flow will show whether Mercedes is regaining the financial headroom its supply and product plans require.
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