Mercedes-Benz is now also facing some big challenges. The Stuttgart-based automaker expects lower operating profits this year than it had previously indicated to its shareholders. This was to be expected, especially after its Munich based competitor BMW recently reported significant difficulties with a Continental braking system recall, and highlighted the weakness in the Chinese market, which is particularly important for both manufacturers. From April to June, Mercedes-Benz sold over a third of its cars in China– more than twice as many as in the US, and more than three times as many as in Germany.

The extent of the adjustment to the outlook still caught investors off guard. The now expected operational margin of 7.5% to 8.5% in the passenger car segment is far below the previously targeted 10% to 11%.

The cause of these disappointing numbers are not only the overall lower sales volumes, but also the fact that the pressure in the luxury segment is the highest. For Mercedes-Benz, the S-Class, G-Class, AMG, and Maybach are crucial, as they provide the largest profit contributions to the product range.

Signs of weakness in this category regularly raise doubts about Ola Källenius's luxury strategy. This was evident recently when plans were announced to reduce S-Class production at the Sindelfingen plant from two shifts to one. Källenius and his strategy will be evaluated based on the targets set for 2026. By then, the share of top models in sales is expected to rise to nearly one-fifth. This year, it will only be around 14%.

The volume target reflects Källenius's intention to increase profitability and maintain it at a higher level as much as possible. However, the current weakness – not only in China – shows that even the premium segment is vulnerable when the economy is not performing well. Mercedes-Benz's strategy of making only minor price concessions and accepting volume losses is the right approach. Otherwise, the strength of the brand would suffer.

A recent example of this is Tesla. One round after another of price cuts has eroded the profitability of the electric vehicle provider, which had long set new standards in the industry. Weak demand for electric vehicles in Europe and North America exacerbates the difficult situation for everyone. Poor sales lead to a loss of value, even in the premium segment.