Actually, Ola Källenius could be relaxed. In Europe, the Mercedes boss's product strategy is working. In particular, its new electric cars like the CLA are selling brilliantly there. In Germany, Mercedes even grew by 13 percent. For the third month in a row, Mercedes is ahead of its arch-rival BMW in the top German segment.
And Mercedes is also growing in the USA. Källenius even dreams of increasing sales there from 200,000 cars a year to 300,000. The new S-Class, for example, is not yet in all markets and other promising products are in the pipeline.
And yet there was no sign of relaxation when Källenius explained the quarterly figures on Wednesday. The manager has just had to lower his profit target for the full year. Mercedes will now hardly do better in terms of profit margin than the crisis group Volkswagen. In the core car business, adjusted for special effects, there was just 2.5 cents in profit for every euro. Because Källenius has two problems, and they are called China and Germany.
Both problem cases are related. The starting point, as is currently the case everywhere in the automotive industry, is China. The car market there has collapsed this year because important government subsidies have expired. What's even worse for Källenius is that it no longer works in the most expensive segment. Sales there have fallen by over a fifth. Because local car manufacturers have discovered premium cars for themselves and are significantly undercutting Mercedes in terms of price.
Although Källenius claims that Mercedes can now be at the forefront of digital offerings such as driving assistants in China, the price gap is simply too large. Mercedes sales figures have therefore fallen by eight percent worldwide. The comparison shows just how dramatically important China is: Without the country, Mercedes would have achieved one percent growth.
Källenius wants to present a new China strategy in February. He has already closed factory capacity in the country, reduced costs and thinned out the dealer network. With the new E-Class in the second half of 2027, he is taking another step. Instead of producing cars from parts, many of which are imported to China from Europe, as is currently the case, almost only cheaper parts from the country itself should be used.
It is this development that builds a bridge to the second problem area: Germany. This is not about a weakness in the market, but about the costs. Källenius has been making the issue of labor costs his core message for months. “Germany has to take a big leap forward to secure its industry,” he said in a telephone call with analysts. “For me it’s not just about Mercedes, but the location as a whole.”
Källenius has already made it clear in recent months what lies behind it. He demands that IG Metall give up the hard-won 35-hour week and work 40 hours again. On Wednesday he backed this up with figures: In the USA, he says, labor costs are only 80 percent of those in Germany, in Hungary they are 30 percent, in Romania they are 20 percent and in China they are only ten to 20 percent. “We will not want or be able to convert Germany into Hungary, but it must be possible to reach roughly the same level as the USA,” said Källenius.
Official European statistics support these figures. In the USA, however, there is a clear difference between the classic auto center of Detroit, where the UAW union is strong. Labor costs there are close to those in Germany, and significantly lower in the southern states where German car manufacturers have their factories.
Källenius uses this difference to create a clear threatening backdrop. In the analyst call, he emphasized that there was still space in the plant in Hungary, which had just been expanded to double capacity. The message is clear: If costs do not fall significantly in Germany, there are alternatives in Central Europe.
The message has already reached the workforce, as the second program for job cuts via voluntary severance payments will start in December within just a few months. Källenius once again leaves it open how many people should go.
One thing is clear: Like its competitors BMW and Volkswagen, it expects artificial intelligence to achieve significant efficiency gains among engineers and in administration. He has also already indicated that a car factory and a components factory in Germany could be closed if the union does not give in. Politics could at best provide support here. “It would be most welcome if politicians improved competitiveness in all dimensions,” says Källenius. But concessions from the works council and union are more important.
"We employ around 90,000 of our 150,000 employees in this country. That's why we're so worried about Germany," says Källenius. IG Metall has so far resisted and accused Källenius of exploiting the crisis in the auto industry to attack social achievements. The union members can also point out that fixed costs in Germany have already fallen by a quarter at Mercedes since 2019, meaning that concessions have already been made.
The employees also suspect a concerted action by employers. Volkswagen has also terminated a whole series of collective agreements and expects several zero-wage agreements from its employees in the coming years. Porsche has concluded an agreement according to which salaries at the sports car manufacturer will increase less on average over the next few years than in the collective bargaining agreement. And job cuts are also underway at BMW.
In the past decades, the great success of the German auto industry in China was able to cover up weaker profit margins in Europe. With the rise of Chinese manufacturers, this model no longer works. The export of expensive cars produced in Europe to China, which had promised success in at least some areas in recent years, is almost no longer worthwhile. And now the Chinese are increasingly pushing into Europe.
At least Källenius weighs in on this point: Despite the attempts of premium brands from China to gain a foothold in Europe, Mercedes is making significant gains. And he even sees himself as a technological leader. Mercedes drivers of the latest models should be able to try out a driving assistant similar to Tesla Full Self-Driving in Munich and Stuttgart in December. This should be activated nationwide at the beginning of 2027. The manager is happy that this makes Mercedes the first manufacturer to be able to offer the technology in Germany.
That could at least console him a little about the weak numbers. Mainly due to weak business in China, Mercedes sales fell by 4.5 percent to 30.7 billion euros in the third quarter. And because raw materials are still in short supply due to the conflict in the Middle East, operating profit recovered less than hoped.
In addition, the latest generation of cars, which are currently selling particularly well, are expensive to equip - for example because of the built-in high-performance computers and expensive batteries. Mercedes now sells almost 17 percent of its cars worldwide as fully electric variants. Along with rechargeable hybrids, a quarter of passenger car sales are electrified.
In the quarter, operating profit increased to 1.7 billion euros. After all, that was more than double compared to the extremely weak quarter of the previous year. Mercedes had already lowered its expectations for the year as a whole on Tuesday.
Sales in 2026 are expected to be slightly below the previous year's figure of 132 billion euros, and operating profit is expected to be at the weak level of 2025 at around 5.8 billion euros. The share had therefore already fallen by over two percent on Tuesday.
Analysts reacted undaunted to the profit warning. They had expected weak business anyway, as they too were aware of the difficult market situation in China.
