Mercedes-Benz has suffered a sharp reversal in China, with profits in the world's largest car market plunging by 94% over the past quarter, information from figures reported by Auto Bild. The downturn comes as the German automaker confronts weaker demand for European luxury vehicles and stiffer competition from domestic brands.
The reported figures put Mercedes' China earnings at €783 million before they fell to €49 million three months later. The contrast with its broader results is striking: Mercedes-Benz reported second-quarter 2026 revenue of €32.061 billion and net income of €1.065 billion worldwide. Those company-wide figures give a broader view of its financial performance, while the China decline highlights pressure in a strategically impressive market.
Sales figures show the scale of the challenge. Mercedes-Benz sold about 87,000 vehicles in China in the third quarter of 2026, down 31% year on year. BMW's China deliveries were about 114,000, a 24.8% decline over the same period. The drops at both manufacturers point to a wider squeeze on German premium brands, not an isolated setback for Mercedes.
Demand is shifting toward Chinese manufacturers, whose vehicles pair software and intelligent-driving features with rapid updates, often at lower prices. Li Auto and NIO are increasingly targeting buyers who might once have chosen another European luxury car; AITO is competing for the same customers. Market commentary carried by Record China and attributed to Yicai put the shift succinctly: “China's luxury new energy vehicles continue to seize market share from established luxury car manufacturers.”
Pricing and resale values add to the pressure. The September 2026 China Automotive Residual Value Research Report, compiled by the China Automobile Dealers Association and Jingzhengu, put Mercedes-Benz's average three-year residual value at 49.3%. BMW stood at 43.8%, while Audi was at 42.3%. Porsche came in at 57.0%, and Tesla at 56.3%. The same report recorded price cuts for more than 30 internal-combustion models during the first five months of 2026, reflecting the discounting affecting the market.
The competitive shift also runs in the other direction. Reuters has described Chinese automakers' growing push into Europe, where they increasingly challenge established brands. Mercedes-Benz and BMW are among the rivals, alongside Audi and Porsche. Chinese consumers are placing greater weight on technology, while European buyers have traditionally put more emphasis on brand heritage. German manufacturers must now defend their position in China as Chinese brands expand abroad.
Automakers are responding with product and cost adjustments rather than walking away from China. BMW, for example, is preparing 20 new or updated vehicles for the Chinese market by the end of 2027, with faster technology deployment among its priorities. Across the industry, companies are deepening localization and tailoring products to local preferences.
Mercedes continues to regard China as a impressive market, but the earnings decline reflects how difficult it has become to turn that importance into growth. Domestic electric-vehicle makers are intensifying competition as buyer priorities shift and discounting spreads. The company's ability to stabilize its position will depend on how well its products, technology and pricing match those changes.
The reversal comes as electric vehicles and new technologies reshape consumer expectations across the global automotive industry. A recent analysis compares the Skoda Elroq, Tesla Model 3, and Kia EV4 in the affordable electric segment: see how these models stack up on range, comfort, and value.
European luxury brands' ability to compete in China may hinge on how quickly they innovate and adapt to local market dynamics. Mercedes' reported profit decline shows how sharply the balance of power is shifting in the world's largest automotive market.
