Mercedes car division operating profit more than halves as China sales drop 31%

Mercedes-Benz reported a sharp deterioration in its car division's earnings for the third quarter, with the adjusted operating margin in the passenger-car unit falling to 2.5%, down from 4.8% in the same period a year earlier.

Operating profit in the car division dropped to 560 million euros, less than half the prior-year figure. Mercedes attributed the decline to weakening China business and spending on new products.

Between July and September, Mercedes delivered 86,800 vehicles in China — 31% fewer than a year earlier. Chief Executive Ola Källenius said market conditions had grown "even more challenging" over the course of the year, particularly in China, and acknowledged that market behaviour had been "hard to grasp," including in the luxury segment.

The company had already lowered its full-year guidance on Tuesday. It now expects an adjusted passenger-car margin of 2% to 3%, against a previous forecast of 3% to 5%, and anticipates pre-tax profit at the prior-year level rather than the improvement it had projected.

Chief Financial Officer Harald Wilhelm said Mercedes wanted to become less dependent on China as a source of profit. Källenius said the company would review its positioning in China and provide detail on concrete plans early next year, adding that Mercedes would respond to growing competition with attractive vehicles.

Mercedes also flagged higher material costs in the fourth quarter as an additional headwind.