Germany's automakers spent decades making money selling premium cars to Chinese buyers. Now, local rivals are offering cheaper alternatives, and the pressure is showing up in earnings. Mercedes-Benz became the latest German automaker to cut its outlook on Oct. 27, following BMW and Volkswagen.
The cuts keep coming
Mercedes-Benz now expects 2026 core profit to remain flat at around €5.8B, abandoning its earlier forecast for growth of at least 15%. Weak demand in China and rising material costs are taking a toll.
The company also lowered its car division's margin forecast to 2%–3%. Deliveries in China fell 29% through September, following an already weak 2025.
BMW had already cut its outlook in June as Chinese demand weakened and costs climbed. Volkswagen followed in September, lowering its operating return target to no more than 1%.
German carmakers slashing 2026 profit targets
Revisions to key 2026 profit metrics amid deteriorating China demand.
2026 Guidance Revisions
| Company | Profit Metric | Previous Guidance | Revised Guidance | Date Cut |
|---|---|---|---|---|
| Mercedes-Benz | Car division margin | 3% to 5% | 2% to 3% | Oct. 27, 2026 |
| BMW | Automotive EBIT margin | 4% to 6% | 1% to 3% | June 19, 2026 |
| Volkswagen | Operating return on sales | 4% to 5.5% | Up to 1% | Sept. 21, 2026 |
China is the problem
BYD, Xiaomi, and Geely are making life difficult for German automakers. Their vehicles compete aggressively on price and technology, giving Chinese buyers fewer reasons to pay a premium for European brands.
The broader market isn't helping either. China's passenger car market shrank 17.5% in the first quarter, while BMW's local deliveries fell 10%.
Metzler analyst Daniel Schwarz pointed to China as the main reason German automakers are struggling. Mercedes reported an 8% annual decline in core car sales during the third quarter.
And the competition is no longer limited to China. Chinese automakers are expanding into Europe, putting additional pressure on German brands in their home market.
The bills are piling up
Volkswagen expects around €10B in special charges this year, including a writedown tied to Porsche. Annual revenue is projected at roughly €315B, down from €321.9B in 2025.
The company also plans to eliminate 120K jobs globally by the end of the decade, a restructuring effort that highlights just how expensive the industry's transition has become.
Mercedes is taking a different approach. CEO Ola Kaellenius has asked German employees to work additional unpaid hours while moving more production to Hungary, where manufacturing costs are reportedly 70% lower.
Both companies are trying to protect margins, but cost reductions alone won't solve their problems in China.
Porsche takes another road
Porsche offers a different picture. Operating profit reached €1.74B in the first nine months of 2026, compared with just €40M a year earlier, when restructuring charges weighed heavily on results.
That recovery comes with a catch. Revenue fell 5.9% to €25.28B, while deliveries dropped 16% to 178,532 vehicles.
North America remained Porsche's largest market by volume, reflecting its efforts to reduce dependence on Chinese buyers.
German carmakers are losing ground in China
Reported 2026 delivery and market declines, % (periods differ as labeled)
Bar chart. % change. BMW China deliveries (Q1): Change (%) -10%. Porsche global deliveries (9 months): Change (%) -16%. China passenger car market (Q1): Change (%) -17.50%. Mercedes-Benz China deliveries (9 months): Change (%) -29%.
Citi analysts said Porsche's underlying earnings held up better than those of its German premium competitors. However, they expect 2027 to remain a difficult year, with a recovery beginning in 2028. Porsche isn't out of trouble, but its reduced China exposure gives it some breathing room.
How to think about exposure
The case for avoiding China-heavy German automakers rests on three cuts in five months with no sign the pressure has peaked. Each revision came from the same cause, and none of the three has shown a plan that restores pricing power in its largest growth market.
Mercedes and BMW are still heavily exposed to China, while Porsche has cut its exposure. Volkswagen carries the added weight of a restructuring bill that stretches to the end of the decade, with about €2B of the hit landing in the second half of 2026 alone.
Porsche's numbers show the one thing that has worked, which is selling fewer cars in China and more elsewhere at luxury prices. Until Mercedes or BMW can point to a similar shift in their delivery mix, the sector's earnings base keeps eroding.
