Mercedes-benz Group AG

Income statement

Margins

Important qualifications.

• FY2021 EBIT of €16,028 million is continuing operations. The Remuneration Report 2025 comparative table shows FY2021 Group EBIT of €29,069 million including discontinued operations — the difference is the Daimler Truck deconsolidation gain. FY2021 net profit is likewise shown on a continuing-operations basis (€11,050 million); the total including discontinued operations was materially higher. Any FY2021→FY2025 CAGR calculation must specify which basis is used.

• FY2023 revenue is shown on the IAS 8-restated basis (€152,390 million); the originally reported figure was €153,218 million. FY2023 net profit of €14,500 million is the "€14.5 billion" figure stated in the FY2023 Annual Report CEO letter and results release; a precise restated figure was not obtainable and it is therefore rounded rather than exact. Simply Wall St reported FY2023 net income of €14.3 billion — a modest discrepancy that likely reflects attributable-to-shareholders versus total net profit.

• FY2025 adjusted EBIT excludes €1,191 million of Cars restructuring, €422 million of Financial Services legal provisions (UK discretionary commissions), €365 million of Vans M&A charges (Argentina), and related items; total adjustments were €2,415 million.

Revenue CAGR

Commentary. The five-year revenue path is deceptively flat and genuinely bad. Revenue peaked in FY2023 at €152.4 billion and has fallen 13.2% in two years; EBIT over the same two years has fallen 70.4%. Three drivers explain almost all of it.

China: Group revenue from China fell from €25,284 million (FY2023) to €16,519 million (FY2025), a 34.7% decline in two years, and fell a further 33.6% year on year in Q4 2025 alone. Car unit sales in China fell 19.3% in FY2025 and 28% in H1 2026. This is not cyclical: the Annual Report 2025 describes structural market shifts driven by strong sales growth for new market participants, and the H1 2026 report notes the premium and luxury segment in China remained strained with foreign manufacturers in particular experiencing significant decreases.

Tariffs: US import tariffs cost Mercedes-Benz Cars roughly 110 basis points of adjusted return on sales in FY2025 — management disclosed adjusted RoS of 5.0%, or 6.1% excluding tariffs. FY2025 guidance was withdrawn in Q2 2025 pending assessment.

Currency and pricing: H1 2026 revenue decline was attributed principally to negative exchange rates and negative net pricing. The euro appreciated roughly 13% against the US dollar and 8.5% against the renminbi over the course of 2025.

Against these, the offset is cost. "Next Level Performance" delivered a positive EBIT contribution of more than €3.5 billion in FY2025 at Cars alone; in Q2 2026 general administrative expenses fell 14%, R&D fell 12% and Cars cost of sales fell 7%, producing a 22% EBIT increase on a 3% revenue decline — the first quarter in this cycle in which cost action outran revenue erosion.

Balance sheet: notes and sources

FY2021–FY2024 total assets and equity are from Yahoo Finance's rendering of the company's IFRS statements; FY2025 and H1 2026 are from the Interim Report as of 30 June 2026. Goodwill is not separately presented on the face of the balance sheet under the current format; the Group has stated it will present goodwill as a separate line item upon IFRS 18 adoption.

Working capital. The Group does not present a conventional working capital figure; it manages "working capital" as inventories plus trade receivables less trade payables at the industrial business. On that basis FY2025 saw a €1,484 million working capital release (versus a €507 million build in FY2024) — inventory destocking was the single largest positive contributor to industrial free cash flow in a year of collapsing profit. In H1 2026 trade payables rose €3.5 billion, again flattering cash.

Commentary. The balance sheet is the strongest part of the equity story. Equity ratio has risen from 28.2% to 35.7% in four and a half years; the industrial business alone runs a 66.7% equity ratio. Industrial net liquidity of €30.4 billion at 30 June 2026 is roughly two-thirds of the entire equity market capitalisation. The pension funding ratio improved from 104% to 117% between end-2024 and mid-2026. Group net debt of €84.6 billion is almost entirely the funding of the leasing and sales-financing book and should not be read as industrial leverage.

Cash flow: notes and sources

FY2023 industrial free cash flow of €11.3 billion is the press-release figure; the FY2025 Remuneration Report's comparative table shows €11,881 million for FY2023 and €9,479 million for FY2024, noting that EBIT and FCF IB "may be standardised for the purpose of remuneration". The Fact Sheet figures (€9,152 million for FY2024) are used above as the reported basis.

Commentary. Free cash flow of the industrial business fell 40.8% in FY2025 to €5,414 million, but the composition matters: Q4 2025 alone was negative €175 million, driven by €2,634 million of PP&E investment in a single quarter. Investment in PP&E rose 35.7% in FY2025 to €5,482 million, and Cars net investment in PP&E and intangibles was €7,609 million. Management has stated explicitly that capex and R&D peaked in 2025 and will decline from 2026 — this is the single most important forward assumption in the equity case. H1 2026 partially contradicts it: PP&E investment rose 23% year on year to €1,969 million, though this is Vans-driven (up 81%) while Cars was up only 13% and R&D fell 8%.

Vans CFBIT of negative €347 million in H1 2026 (versus positive €787 million a year earlier) reflects the VAN.EA ramp; the FY2026 adjusted cash conversion guidance for Vans of 0.1–0.3 confirms this is planned, not accidental.

Ratios

Ratios that cannot be meaningfully computed and why. ROIC, current ratio, interest coverage, net debt/EBITDA and the cash conversion cycle are not meaningful at Group level for an OEM with a consolidated captive bank: Group net debt of €80.8 billion is funding for the €128.8 billion financial services portfolio, and interest income/expense is embedded in Financial Services revenue and cost of sales rather than the financial result. The Group itself manages on value added (EBIT less a capital charge on average net assets) and RONA (EBIT / net assets), and does not publish ROIC. Net assets at Group level were €58,323 million at 30 June 2026 (Cars €37,311 million, Vans €3,200 million); FY2025 Group RONA on that basis is approximately 10.0% (€5,820 million / €58,147 million), against a cost of capital the Group does not publicly disclose. Interest coverage is nominally very high — Group interest expense was only €66 million in H1 2026 against €197 million of net interest income — because the industrial business is net cash.

Inflection points.

1. FY2023 → FY2024 — the first genuine break. EBIT fell 31%, driven by Chinese volume, negative net pricing and the first restructuring charges (€350 million at Cars in Q4 2024).

2. Q2 2025 — guidance withdrawal on tariffs; Cars adjusted RoS fell to 5.1%.

3. Q4 2025 — the trough. Cars adjusted RoS of 2.6%, Group adjusted EBIT of €1,602 million, industrial free cash flow negative.

4. Q2 2026 — the first positive inflection: reported EBIT +22% year on year despite a 3% revenue decline and €704 million of non-cash China impairments, with Financial Services adjusted EBIT +70%.

Management guidance for FY2026 (as revised 28 July 2026)

Group revenue slightly below the prior-year level; Group EBIT significantly above the prior-year level (largely a function of the FY2025 restructuring base); industrial free cash flow slightly below FY2025. Cars: unit sales slightly below prior year, xEV share 23–25%, adjusted RoS 3–5% with the expectation of finishing in the lower half, adjusted cash conversion 1.0–1.2, PP&E investment slightly below and R&D significantly below prior year. Vans: unit sales and xEV share slightly above prior year, adjusted RoS 8–10%, adjusted cash conversion 0.1–0.3, PP&E investment significantly above and R&D slightly above prior year. Financial Services: adjusted RoE 12–14%. Guidance now incorporates potential H2 2026 M&A effects; on an ex-M&A basis the underlying forecasts are unchanged from February. Management flags that raw material and tariff headwinds increase in H2 2026 but are within guidance, and that sales momentum builds through the year with Q1 the low point.

Implied H2 2026 arithmetic. H1 2026 delivered EBIT of €3,451 million against FY2025's €5,820 million. To be "significantly above" FY2025, H2 needs roughly €3.0–3.5 billion of EBIT versus €2,258 million in H2 2025 — achievable given the €1,191 million of Cars restructuring charges in the FY2025 base, but requiring the volume ramp to materialise.

Consensus expectations

Thirty-two analysts carry an average price target of €60.43, implying roughly 20–29% upside from the current €46.86, with expected EPS growth of about 12% and revenue growth of roughly -0.7% for the next year. The Q2 2026 EPS of €1.14 missed the €1.26 consensus by 9.9%; the Q3 estimate is €1.36. Consensus is therefore modelling a meaningful H2 acceleration that the company's own guidance supports but that the last two quarters have not delivered.

Bull case

1. The cost programme is now visibly outrunning revenue decline. Q2 2026 was the proof point: EBIT +22% on revenue -3%, with general administrative expenses -14%, R&D -12% and Cars cost of sales -7%. Fixed costs are targeted 10% lower in 2027 than 2024, material costs 8% lower, and production cost per unit 10% lower. If FY2027 revenue merely stabilises at €130 billion, the announced cost actions alone are worth several hundred basis points of margin — the arithmetic bridge to the 8–10% Cars target does not require a China recovery.

2. The capex and R&D peak has passed, and cash conversion follows. Management has stated both peaked in 2025. FY2025 PP&E investment of €5,482 million and total R&D of €9,680 million represented a combined 11.5% of revenue; H1 2026 R&D was already down 8% with the capitalisation rate rising. Once the Vans VAN.EA ramp is complete, the €347 million H1 2026 Vans cash drain reverses. Combined with roughly €10 billion of announced disposals (Athlon, Daimler Truck residual, Blacklane, COMPAS, Own Retail), industrial free cash flow could re-approach €8–9 billion by 2027–2028 against a €44–48 billion market capitalisation.

3. The non-China business is already growing. Ex-China car sales rose 2% in H1 2026 and 5% in Q1 2026. Europe was +5% and the US +15% in H1. European BEV order intake more than doubled. CLA and GLC are on three-shift production with order books filled into H2 2026. Financial Services adjusted EBIT rose 57% in H1 2026 with guidance raised. Roughly 76% of FY2025 revenue came from outside China, and that 76% is performing.

Bear case

1. China is a permanent impairment, not a cycle. Chinese revenue fell 34.7% in two years to €16.5 billion. Volumes fell 19% in FY2025 and 28% in H1 2026, and locally produced vehicles fell faster than imports — meaning the problem is product and brand competitiveness, not tariffs or logistics. The Q2 2026 impairment of €752 million reflects management's own view of "a lower future profit contribution" from the JVs. China's xEV market share is 48–53%; Mercedes-Benz's global BEV share is 9.4%. If China's premium segment settles 40% below its 2023 level, roughly €10 billion of the highest-margin revenue is gone permanently, and the mid-term target of 2 million units becomes unreachable.

2. The German cost programme may not be deliverable. The Group has explicitly disclosed that further impacts of the productivity offensive "depend on the discussions with the employee representatives", and that the measures decided so far have no significant impact on profitability or cash flow. Meanwhile 33,000 employees protested on 3 July 2026, the works council chairman has publicly rejected the 40-hour week, compulsory redundancies are contractually barred until 2034, and the last voluntary programme achieved only c. 5,500 departures — with management reported to be "not completely satisfied". The savings that bridge to 8–10% are largely unsecured.

3. The financial framework is stretched at the trough. The FY2025 payout ratio was 65.5% against a policy of roughly 40%. The Group is simultaneously paying €3.3 billion of dividends, executing a €2 billion buyback, funding €5.5 billion of PP&E, absorbing rising tariffs and raw material costs in H2 2026, and financing 40 model launches. Industrial net liquidity has already fallen €1.7 billion in H1 2026. If H2 volumes disappoint, something gives — and both S&P and DBRS already carry negative outlooks. BMW's June 2026 profit warning, cutting its margin guidance to 1–3%, is the sector's warning shot.

Catalysts and monitorables for the next 12 months

Analyst verdict

Mercedes-Benz Group in September 2026 is a company whose operating performance has stopped deteriorating and whose valuation has not yet noticed. The FY2025 numbers were genuinely bad — EBIT down 57%, net profit down 49%, the dividend cut for a second consecutive year — but Q2 2026 marked the first quarter in this cycle in which cost action outran revenue erosion, delivering a 22% EBIT increase on a 3% revenue decline while simultaneously absorbing €704 million of China impairments. Ex-China, the business grew. Europe is flat on revenue with volumes up 5% and BEV order intake more than doubled. The US is up 15%. Financial Services had its guidance raised twice.

The market is capitalising all of this at roughly €44–48 billion against €30.4 billion of industrial net liquidity — implying an enterprise value for the operating business of perhaps €13–17 billion on €132 billion of revenue. That is a distressed multiple applied to a company with a 66.7% industrial equity ratio, a 117% pension funding ratio, a 7.5% dividend yield and a 12% total yield.

Two things justify some of that discount. China looks structurally impaired rather than cyclically weak: locally produced volumes fell faster than imports, which is a competitiveness verdict, not a tariff one. And the German cost programme — the bridge to the 8–10% Cars margin target — is explicitly unsecured, contingent on negotiations with a works council that put 33,000 people on the street in July.

The honest position is that this is a call on cost execution, not on demand. The product is working; the launch programme is on schedule; the balance sheet is unassailable. If the German negotiations conclude without a strike and capex genuinely declines from here, free cash flow re-rates hard. If they do not, the dividend is the next thing to give. Watch the works council, not the order book.

APPENDIX: DATA CONFLICTS AND LIMITATIONS