S&P revises Mercedes-Benz outlook to negative amid sales decline

Investing.com -- S&P Global Ratings has revised its outlook on Mercedes-Benz (OTC:MBGAF) AG to negative while affirming the company’s ’A/A-1’ ratings, citing challenging growth prospects for 2025-2026.

The rating agency noted that Mercedes-Benz reported a 6% decline in wholesale unit sales during the first half of 2025, underperforming S&P’s earlier forecast of a 2-3% volume decline for the year. China was the main driver of this decline, with a 14% year-on-year drop, while sales in North America and Europe also trended downward.

S&P believes Mercedes-Benz’s sales momentum will remain weak this year and next as the company’s model offensive may take time to yield results. Following the launch of its new electric CLA model this year, Mercedes’ model overhaul will accelerate in 2026 with the debut of its new electric GLC and C-class built on the group’s new MB.EA electric architecture. The new electric E-class is expected to launch in 2027.

The Chinese market is expected to remain challenging for legacy premium manufacturers like Mercedes-Benz. Competition is likely to intensify in the second half of this year as EV startups like Xiaomi (OTC:XIACF), Xpeng (NYSE:XPEV), and Li Auto (NASDAQ:LI) introduce new electric models with attractive features at lower price points than traditional premium brands.

Mercedes-Benz also faces pressure from the outcome of U.S.-EU negotiations on import tariffs. The agreement on a 15% import tariff represents an additional cost compared to prior years. S&P estimates the company’s maximum tariff exposure at approximately €1.6 billion for the last nine months of 2025 and €2.1 billion for 2026.

The rating agency highlighted that Mercedes-Benz needs to increase its share of battery electric vehicle (BEV) sales in China and Europe. Unlike its German peers who are benefiting from growth in the European EV market, Mercedes-Benz appears to lack momentum, with EV sales down 7% in Europe for the year to end-May compared to the previous year.

S&P expects Mercedes-Benz’s profitability to be under pressure in 2025-2026, with adjusted EBITDA margin projected to dip to 9-10% due to declining sales volume, U.S. tariffs, EV transition, and R&D expenses to support new model rollouts. A potential recovery to above 11% is anticipated in 2027 on mix optimization and cost reduction.

The negative outlook reflects S&P’s expectation that credit metrics at Mercedes-Benz will be below levels commensurate with the current rating over 2025 and 2026, particularly profitability, as the group faces a model changeover in challenging market conditions.

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