Mercedes-Benz reported earnings before interest and taxes of โ‚ฌ1.9 billion ($2.23 billion) in the first quarter of 2026, a 17% decline from the same period a year earlier. The drop was smaller than the 29% fall analysts polled by Visible Alpha had projected, according to Reuters.

Revenue fell 4.9% on the year to โ‚ฌ31.60 billion, the company said. The carmaking unit's adjusted operating margin compressed to 4.1%, down from 7.3% in the prior-year period, a result that nonetheless came in within the company's full-year guidance range of 3% to 5%.

Sales fell 6% globally in the first quarter. In China, the company's largest single market, sales dropped 27% as domestic brands encroached on the premium segment and demand remained weak. Mercedes attributed the China weakness to a combination of factors, saying the market faced "intense competition and subdued demand" during "a transition year marked by model changeovers across the portfolio."

Average selling prices per model declined about 7.7% to โ‚ฌ66,700 in the quarter, the company said.

CFO Harald Wilhelm pointed to strong demand for new products and what he described as "healthy order books" as indicators of improving momentum in the second half of the year. A revamped S-Class sedan, a major contributor to the company's bottom line, is set to debut in the second half.

For the full year, Mercedes expressed confidence that operating profit would come in "significantly above" 2025 levels, a comparison it said would largely be shaped by the restructuring charges the company booked last year. Revenue is expected to be roughly flat on the year. The company's mid-term target for its core carmaking margin is 8% to 10%.

According to Reuters, the duties introduced under the Trump administration are projected to shave 1.5 percentage points off the carmaker's core automotive margin in 2026. In the first quarter, however, the tariff drag was cushioned by an accounting benefit arising from Mercedes' application for a tariff refund in the wake of a Supreme Court ruling last year. Mercedes took a $1.2 billion hit from tariffs last year, according to Bloomberg.

Raw material costs are expected to rise further due to the Middle East conflict, Wilhelm said. The company's full-year profit forecast assumes the conflict will be resolved soon, he added.

As part of its cost-reduction effort, the company has set a target of pulling back total manufacturing output to roughly 2.2 million vehicles, a reduction of more than 10%. German plants, which generate close to half of the company's total production, are covered by union agreements shielding workers from layoffs through 2035, leaving the company little room to cut domestically. According to Bloomberg, the workforce adjustments in Germany are therefore being handled through natural attrition, with the bulk of capacity cuts directed toward operations in other countries.

Mercedes stock rose about 1.1% following the results.