Luxury Automakers Face Profit Plunge Amidst Market Shifts

Global competition and trade policies hit Mercedes-Benz and Audi profits

Premium German automakers Mercedes-Benz and Audi are experiencing significant profit declines, grappling with increased import duties, intensified competition from Chinese manufacturers, and a global economic slowdown impacting consumer demand for luxury vehicles.

Mercedes-Benz Profit Squeezed by External Factors

Mercedes-Benz reported a stark 69% drop in profit for the second quarter, falling to 957 million euros. The first half of the year saw a 55.8% decrease in profit compared to the previous year, with earnings shrinking from 6.1 billion euros to 2.7 billion euros.

Company CEO Ola Calenius acknowledged the “dynamic business environment” but deemed the financial outcome “solid.” The company attributed these results to increased U.S. import duties, reduced sales volumes, and restructuring expenses. The profitability of its core car segment has consequently fallen to 5.1 percent.

Tariffs and Chinese Competition Impacting Sales

A significant factor cited is the steep increase in U.S. import duties on cars like the Mercedes-Benz S-Class, which rose from 2.5% to 27.5%. Analysts suggest the company absorbed these costs rather than passing them entirely to consumers, thereby eroding profit margins. Beyond tariffs, Mercedes-Benz pointed to lower sales and costs associated with efficiency improvements.

Brand sales dipped by 9% in the second quarter, with nearly 454,000 cars sold. The critical Chinese market saw an even sharper decline of 19%. The German automaker is also facing challenges in the competitive electric vehicle sector, where it lags behind rivals in producing more profitable models. A general economic slowdown is reportedly making luxury goods harder to sell, with Chinese electric vehicles gaining traction in Europe.

Despite a duty agreement between Washington and Brussels, sales and turnover are projected to remain subdued in 2025. The first half of the year saw turnover decrease by 8.6% to approximately 66.4 billion euros. Facing these headwinds, Mercedes-Benz plans a substantial restructuring aiming to save 5 billion euros annually by 2027, which includes job reductions.

Audi Also Undergoing Restructuring

Audi, a part of the Volkswagen Group, is also implementing production restructuring to cut costs and jobs. Alongside duties and Chinese competition, these internal measures contributed to a 37.5% profit decline in the first half of 2025, with earnings falling to 1.3 billion euros.

The automotive industry, particularly the premium segment, is navigating a complex landscape. For instance, in 2023, U.S. imports of passenger cars and light trucks faced an average tariff rate of around 2.5% on many vehicles, with higher rates on specific types, impacting global supply chains and pricing (Source: U.S. International Trade Commission).