- Profit Halved, Yet Shares Surge: Mercedes-Benz Group’s net profit collapsed by ~50% in the first nine months of 2025 (down to €3.87 billion from €7.8 billion a year prior) [1]. Third-quarter earnings alone shrank nearly one-third to €1.19 billion on a ~7% revenue drop (to €32.14 billion) [2]. Despite the brutal slump, Mercedes-Benz shares jumped 5–6% to around €57.5–€58, near a 52-week high, when trading opened after the results [3] [4]. Investors cheered that the figures, while weak, beat analysts’ worst expectations [5].
- “In Line With Forecast” – No Guidance Cut: CEO Ola Källenius insisted the Q3 results “are in line with our forecast for the full year”, which already predicted significant declines in sales, revenue and profit [6]. Crucially, Mercedes maintained its outlook and avoided any new profit warning. Management is aggressively cutting costs – a €5 billion efficiency program aims to slash production and fixed costs by 10% by 2027 [7]. The company also surprised with plans to resume share buybacks totaling €2 billion, a higher volume than many expected [8], signaling confidence even amid headwinds.
- Analysts Split on Stock’s Future:Warburg Research reaffirmed its “Buy” rating with a €60 target, noting Mercedes “beat expectations” on operating profit (EBIT) and free cash flow in Q3 [9]. Jefferies likewise holds a €60 target but only a “Hold” rating, recently calling Mercedes comparatively “more value” relative to BMW after raising Mercedes’ target from €55 to €60 [10]. UBS is more cautious with a “Neutral”, €56 target – analyst Patrick Hummel wrote Mercedes exceeded forecasts “across the board” and predicted consensus EBIT estimates will rise ~5%, yet he stuck with a neutral stance [11]. Other banks like Bernstein have Mercedes at Market-Perform (around €55 target), reflecting tempered expectations. Price targets cluster in the mid-€50s to €60, suggesting modest upside at best from current levels.
- Rebounding Stock Price: Mercedes-Benz stock is now trading near its highest level of the past year [12]. At ~€58, shares have rebounded roughly 35% from 52-week lows around €42. The post-earnings pop lifted Mercedes to within ~1% of its recent peak [13]. This DAX-listed automaker now boasts a market capitalization around €52–53 billion, ranking ~11th in the index by free-float weight [14]. The strong market reaction implies investors believe the worst may be over, despite the ongoing challenges.
- Industry Headwinds Persist: Like other German carmakers, Mercedes has been stung by U.S. tariffs and a China sales slump in 2025. The company already cut its guidance earlier this year as new import tariffs under U.S. President Donald Trump drove up costs and Chinese competition eroded sales [15]. Battery EV sales have flatlined (42,600 BEVs sold in Q3, no growth from last year) [16], highlighting challenges in the electric transition. Rivals are struggling too: BMW’s profit warning in October sent Mercedes shares down ~3–4% in sympathy, as Mercedes was grappling with the same China and tariff pressures [17]. And Porsche AG shocked the industry by tumbling to a €966 million operating loss in Q3 – its first quarterly loss, versus a €974 million profit a year earlier [18] – underscoring how severe the auto sector downturn has been. Analysts caution that 2025 may mark an earnings “trough” for luxury automakers, with only a mild recovery expected in 2026 [19].
Earnings Slump Meets Surprising Stock Surge
Mercedes-Benz Group has delivered a paradox for investors: bleak earnings, booming stock. In its Q3 financial report, the Stuttgart-based automaker revealed profits have been nearly cut in half this year amid a barrage of challenges. Cumulative net income for January–September 2025 sank to €3.87 billion – down 50.3% from €7.8 billion in the same period of 2024 [20]. Third-quarter net profit dropped to €1.19 billion (almost a one-third decline year-on-year), as revenue slid 6.9% to €32.14 billion [21]. The company blamed a confluence of higher import tariffs, weaker vehicle sales, and costly efficiency measures for the profit slump [22]. These grim results would normally sour market sentiment. Yet, when markets opened, Mercedes-Benz stock surged over 5% – an indication that the outcome wasn’t as dire as many had feared [23].
Indeed, the stock jumped from €54.65 to around €57.50–€58 in early trading, putting it up ~6% on the day and near a one-year high [24] [25]. At one point shares were over 8% higher than the prior day’s close, before paring back slightly [26]. This counterintuitive rally – a company’s stock soaring after announcing a 50% profit collapse – came because investors had already braced for even worse news [27]. As one market commentary noted, “the stock starts with a significant plus, because analysts had expected worse” [28]. In other words, Mercedes cleared a low bar: despite the profit “crash”, the results beat the most pessimistic forecasts, offering a glimmer of relief. There were also some silver linings in the report that buoyed the market. Notably, free cash flow and underlying operating earnings were stronger than anticipated, and Mercedes moved to reward shareholders with buybacks – hints that the company’s finances may be healthier than the headline profit drop suggests.
Another factor driving the rally was management’s reassurances about the trajectory ahead. CEO Ola Källenius emphasized that the Q3 figures were “in line with our prognosis for the full year”, implying no negative surprise versus guidance [29]. Crucially, Mercedes did not issue any new profit warning or cut its 2025 outlook – a sharp contrast to rival BMW, which did slash its forecast earlier in October. Mercedes maintained that it still expects significant year-over-year declines in unit sales, revenue and earnings for 2025 [30], but investors took comfort that the company appears to have those declines under control. In fact, Källenius suggested the downturn was anticipated and is being managed: the CEO noted the results are tracking internal plans, and he affirmed the group’s strategy to navigate the tough market.
Mercedes also underscored its cost-discipline and shareholder return plans, which likely contributed to the stock optimism. The automaker is undertaking a massive €5 billion cost-cutting program aiming to reduce fixed and production costs by 10% by 2027 [31]. This includes streamlining operations and finding efficiencies to protect margins. At the same time, Mercedes announced it will restart share buybacks – planning to repurchase up to €2 billion worth of stock. Notably, that buyback figure exceeded many analyst expectations [32]. UBS analyst Patrick Hummel pointed out that the planned buyback volume “comes in higher than expected” at €2 billion [33]. A larger buyback signals that management still has confidence in the company’s cash generation and sees value in its own shares, even after profits have tumbled. This kind of shareholder-friendly move can boost the stock price directly (by reducing share count) and indirectly (by indicating optimism from the C-suite). In short, Mercedes delivered a message that no further bad news is on the horizon – a relief that sent bargain-hunting investors into the stock, betting that perhaps the worst of the earnings pain is past.
Mixed Analyst Reactions: Bull vs. Bear Cases
Analysts, however, remain divided on Mercedes-Benz’s outlook, even after this seemingly positive turn of events. Financial experts are parsing whether the stock’s newfound momentum is justified or if challenges will resurface. Warburg Research struck an upbeat tone, reiterating its “Buy” recommendation on Mercedes shares. In a note after the earnings, Warburg’s analyst Marc-René Tonn highlighted that the company “exceeded expectations” on key metrics like EBIT (operating profit) and free cash flow in Q3 [34]. Those better-than-forecast operational results underpin Warburg’s bullish stance. Tonn maintained a €60 price target, suggesting modest upside from current levels. He also noted Mercedes is aiming for improved cash conversion (turning more of its earnings into cash), indicating a focus on financial efficiency going forward [35]. In Warburg’s view, Mercedes’ depressed profits are already priced in, and any outperformance on cash flow or cost cuts is a catalyst for the stock. Warburg’s call echoes the sentiment that Mercedes-Benz is weathering the storm better than anticipated, making the stock attractive after a period of underperformance.
Not all analysts are ready to jump on the bandwagon. U.S. investment bank Jefferies remains more cautious, keeping Mercedes at a “Hold” rating. Jefferies did recently raise its price target to €60 (from €55), but it stopped short of a buy call [36]. Veteran autos analyst Philippe Houchois of Jefferies acknowledged an interesting development: among German premium automakers, the risk/reward calculus has shifted in Mercedes’ favor relative to BMW [37]. He wrote that Mercedes now appears comparatively more valuable (“werthaltiger”) than its Munich-based rival, even downgrading BMW in favor of Mercedes [38]. Despite that relative preference, Jefferies is essentially saying both Mercedes and BMW are fairly valued at current prices – hence the Hold rating. The bank’s €60 target is roughly where Mercedes trades after the latest bounce, implying the stock may have limited further upside until there are clearer signs of earnings recovery or improvement in market conditions.
Meanwhile, UBS has taken a middle-of-the-road stance. The Swiss bank kept its “Neutral” rating with a €56 target after Mercedes’ report [39]. Analyst Patrick Hummel sounded impressed by the quarterly beat – noting Mercedes beat expectations “across the board” in Q3 [40]. Hummel specifically pointed out that all key results were above consensus, and he believes the broader analyst “consensus for this year’s adjusted EBIT will likely rise by ~5%” as a result [41]. In other words, Mercedes’ guidance appears conservative, and analysts are adjusting their models a bit higher given the Q3 strength. Despite these positives, UBS is reluctant to turn bullish, as reflected in the Neutral rating. Their €56 target is a tad below the latest price, suggesting the stock may be slightly ahead of fundamentals.
Other analyst updates around the same time underscore a range of opinions. For instance, Bernstein Research kept Mercedes at “Market-Perform” (equivalent to Hold) with a target around €55 [42], expressing concerns that lingering macro and sector headwinds cap the upside. And according to market reports, Goldman Sachs and JPMorgan have remained optimistic on luxury automakers in general, but even they urge selectivity amid the volatility. The net effect is that price targets for Mercedes-Benz now cluster in the high-€50s, right around the stock’s current trading range. One might say the stock is approaching “fair value” in the eyes of the Street, unless Mercedes can deliver further earnings surprises or favorable news. This balanced sentiment – neither an outright endorsement nor a condemnation – suggests that the recent rally could pause unless new catalysts emerge. As analyst debates play out, investors will be watching upcoming quarters closely to see if Mercedes can stabilize profits and prove the recent optimism is warranted.
Notably, one point of intrigue is Mercedes’ standing relative to peers. Whereas a few months ago investors fretted that Mercedes was lagging (especially in electric vehicles and China), some now argue it might be in a stronger position than certain competitors. Jefferies’ Houchois, for example, effectively shifted his preference to Mercedes over BMW [43], indicating a changing perception. Mercedes’ valuation – at roughly 5.5 times 2025 expected earnings, per market estimates – is lower than historical norms, reflecting a lot of bad news already baked in. If the company can execute its cost cuts and if demand in key markets stops deteriorating, bulls argue the stock has room to run. However, bears counter that uncertainties in China, the EV transition, and global trade could still spoil the party. The mixed analyst recommendations underscore that Mercedes-Benz remains at a crossroads, with its stock needing further proof of a turnaround to break out beyond the €60 zone.
Outlook: Cost Cuts, Buybacks & The Road Ahead
Mercedes-Benz’s management is banking on a strategy of discipline and selective investment to navigate the current downturn. The announced €5 billion cost-saving program is central to this plan [44]. By 2027, the company aims to trim fat and become leaner, targeting a 10% reduction in both manufacturing and overhead costs. This involves streamlining production processes, improving efficiency in factories, and likely headcount and procurement savings – a playbook many automakers adopt during lean times to protect margins. Such measures should gradually improve Mercedes’ profitability even if revenue growth remains hard to come by in the short term. Ola Källenius emphasized that Mercedes is “on course” and the quarterly results align with internal projections [45]. The implication is that no drastic strategy overhaul is needed; rather, Mercedes will double down on executing its existing plans (which include a focus on high-end models and improving efficiency) to ride out the storm.
On the capital allocation front, Mercedes’ decision to resume share buybacks is a noteworthy vote of confidence. The company had earlier curtailed its stock repurchase plans amid economic uncertainty – reportedly scaling back an original €5 billion buyback target to about €2 billion due to the challenges in China and elsewhere [46] [47]. Now, by going ahead with a €2 billion buyback, Mercedes signals that it still generates ample cash and sees its current share price as an attractive investment. In fact, UBS analysts were somewhat surprised that the buyback volume was as large as it is [48]. A resumption of buybacks could provide a tailwind for the stock by reducing supply and boosting earnings-per-share. It also contrasts with the more dire situation at rival companies – for example, Porsche suspended its dividend outlook and suffered a steep share price decline after its massive Q3 loss [49]. Mercedes, by continuing to return cash to shareholders, is implicitly communicating that its balance sheet and cash flows remain solid. This steadiness is part of why Mercedes stock has been relatively resilient in recent weeks, especially compared to some peers.
That said, major external challenges cast a long shadow over Mercedes’ forecast. A key market, China, has been a sore spot. In Q3, Mercedes’ vehicle sales in China plunged 27% year-on-year [50] – a drop even steeper than the 12% global unit sales decline [51]. The Chinese market is intensely competitive, with domestic EV makers like BYD and Nio eroding the market share of foreign brands. All German luxury marques, from Mercedes to BMW and Audi, have struggled to maintain momentum in China’s rapidly shifting landscape. Price wars and local competition are squeezing margins and volumes. Mercedes has responded by prioritizing its highest-end models (where brand cachet still carries weight), but the volume erosion is evident. Additionally, geopolitical trade issues have directly hit the company’s bottom line. Mercedes is one of several European automakers caught in the crossfire of U.S.–EU trade tensions – Trump-era tariffs on autos and parts have raised costs substantially [52]. Mercedes-Benz had to pay more for imported components and faced tariffs exporting cars to the U.S., which contributed to profit declines. The company joined others in lobbying for tariff relief. While a transatlantic deal to cut auto tariffs from 10% to 0% was envisaged to take effect in 2025, implementation delays have pushed any benefit into 2026 [53]. In the meantime, Mercedes and its peers effectively swallowed hundreds of millions in extra costs this year due to duties – a painful hit to margins across the industry [54].
These headwinds prompted Mercedes (and rivals) to trim forecasts earlier in 2025 [55], and they remain concerns going forward. The consensus among industry watchers is that relief will be gradual. On China, for instance, Mercedes is cautiously optimistic that demand could stabilize in the medium term, but there’s no quick fix as local brands continue to innovate and undercut on price. On trade, the best hope is that 2025 is the last year of the tariff drag, assuming political progress holds. Until then, Mercedes is effectively in damage-control mode – cutting costs, adjusting production, and focusing on its most profitable models (like the S-Class, G-Wagon, and high-margin SUVs) to compensate for lost volume.
One bright spot for Mercedes has been its strong pricing power in Europe and other regions. The company noted that sales in Europe, South America, and the Middle East were holding up better [56], helping offset some weakness in the U.S. and China. Additionally, Mercedes’ transition toward electric vehicles, while slower than planned, has avoided the kind of overreach that felled Porsche this quarter. Mercedes’ EV sales were essentially flat year-on-year (just 42,600 BEVs in Q3) [57], indicating the company hasn’t aggressively overextended in EV inventory. Porsche, by contrast, had to take a €3 billion write-down for an over-ambitious EV push [58]. Mercedes’ more measured EV rollout – focusing on flagship EVs like the EQS but not completely abandoning combustion models – might prove wiser in the current environment of uncertain EV demand. However, the flip side is that Mercedes must accelerate its EV progress in coming years to meet regulations and consumer shifts, all while managing the current economic slump.
Broader Auto Industry Turbulence and Mercedes’ Prospects
To put Mercedes-Benz’s situation in context, it’s important to note that the entire auto sector is navigating stormy weather in 2025. Germany’s car industry, in particular, is under rare pressure. In early October, BMW issued a shock profit warning – halving its cash flow outlook and cautioning that 2025 earnings would fall year-on-year, reversing earlier promises of flat growth [59] [60]. That announcement sent auto stocks plunging. BMW’s share price dived ~7% in a day, and Mercedes-Benz stock dropped about 3–4% in sympathy [61], as investors feared similar troubles across the board. Those fears were not unfounded: Mercedes had indeed been wrestling with many of the same problems – particularly a China slump and tariff hits – that spurred BMW’s warning [62]. The difference was that BMW’s issues pushed it to revise guidance, whereas Mercedes (at least so far) has managed within its existing forecasts. Still, the ripple effect of BMW’s warning on Mercedes shares highlighted how correlated fortunes are in this sector: when one major player sneezes, others catch a cold. It also illustrated that market sentiment was already quite bearish on autos going into Mercedes’ earnings – which, paradoxically, helped Mercedes when it cleared a low bar.
Then came Porsche’s bombshell results. The sports car maker (majority-owned by Volkswagen) revealed a nearly €1 billion loss in Q3, its first quarterly loss in modern history [63]. Porsche’s earnings were wrecked by a combination of massive one-time costs (pulling back on an over-aggressive EV strategy) and the same external headwinds of tariffs and China’s downturn [64]. The fact that even Porsche – long seen as a profit machine – could see its profits “wiped out” (in the words of one analyst) by the current climate sent a sobering message across the industry [65]. Auto analysts have slashed forecasts for many companies, warning that “the next 6–12 months will be very tough” for European carmakers’ earnings [66]. This broader context makes Mercedes’ 50% profit drop look less shocking – many peers are faring as bad or worse. It perhaps also contributed to the market’s forgiving reaction to Mercedes’ results; expectations were tempered by the carnage seen elsewhere.
Looking ahead, there is a glimmer of hope that 2025 might mark the bottom. Porsche’s CFO recently said that 2025 will likely be the “trough” for earnings, with a modest rebound expected in 2026 [67]. If that view is correct, Mercedes and others could start to see improvement next year – albeit slowly. No one is predicting a sharp V-shaped recovery for the car industry, but rather a gradual healing. Key to Mercedes’ future performance will be China – a stabilization (or at least no further collapse) in Chinese demand would remove one of the biggest weights on earnings. Likewise, any resolution on tariffs (for example, if U.S.–EU auto trade talks bear fruit in 2026) could lift a significant cost burden. In the interim, Mercedes will rely on its strengths – a renowned brand, pricing power in luxury segments, and a still-robust balance sheet – to get through the lean period.
For investors, the question is whether Mercedes-Benz stock’s recent surge is the start of a sustained rally or just a relief blip. The shares are now up about 15% over the past month, outperforming the DAX index, as traders snapped up auto stocks on any hint of good news. At roughly €57–€58 per share, Mercedes trades at roughly 6 times projected earnings, a valuation that reflects pessimism but could expand if confidence builds that earnings have bottomed. Analysts’ price forecasts (mostly €55–€60) indicate limited upside unless conditions improve [68] [69]. It’s a classic tug-of-war: bulls argue the stock is cheap and poised to rebound with any cyclical upswing or progress on cost cuts, while bears warn that structural challenges (like competition from Tesla and Chinese EVs, and stricter emissions rules) may cap Mercedes’ profits for longer.
In summary, Mercedes-Benz has delivered a textbook case of “better than feared” – a steep profit decline that still managed to hearten the market. The stock’s rally, fueled by expectations of a bottoming-out, indicates that investors are already looking past the nadir of 2025. However, the company’s journey back to growth is fraught with challenges. As one industry observer quipped, “the global auto rebound story is fragile” [70]. Mercedes-Benz will need to execute impeccably on its restructuring and hope for some macroeconomic tailwinds to truly turn the corner. The next few quarters will reveal if this iconic German automaker can defy the gloom, or if the current optimism proves premature. For now, Mercedes-Benz stock is riding high on hope – a welcome change from the doom-and-gloom that dominated the sector earlier this year. Investors and analysts alike will be watching closely to see if that hope is converted into tangible results in the months ahead.
Sources:
- Mercedes-Benz Group Q3 2025 Results – Wallstreet Online / dpa-AFX [71] [72] [73] [74]
- Market Reaction and Stock Data – WELT / dpa-infocom [75] [76]
- Warburg Research Analyst Comment – dpa-AFX via W.O. [77]
- Jefferies Analyst Comment – finanzen.net [78]
- UBS Analyst Comment – dpa-AFX via W.O. [79]
- Reuters News on Mercedes Guidance & China – Reuters [80] [81] [82]
- TS² Tech Analysis on Auto Sector – TechStock² (ts2.tech) [83] [84] [85]
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