Mercedes 2Q26 beat expectations, but China uncertainty weighs on valuation

Overview

This report is Bernstein's company research on Mercedes-Benz Group AG following its 2Q26 results. The core conclusion is that Mercedes delivered relatively resilient quarterly results in a very difficult macro, geopolitical, and Chinese competitive environment, with group EBIT, free cash flow, and some segment performance beating consensus; however, the deterioration of the China profit pool and pressure on passenger car volumes make the medium-term profit recovery path more uncertain, so Bernstein raised the SOTP valuation discount and lowered the target price.

Core views

The report believes the positives mainly come from three aspects: first, 2Q26 adjusted results exceeded company-compiled consensus, passenger car adjusted margins remained within full-year guidance, and Vans remained a high-margin benchmark; second, the new-generation BEV, MB.OS, and ADAS/software-defined vehicle strategy has seen strong demand validation in Europe; third, strong net industrial liquidity, monetization of the Daimler Truck stake, and incremental buybacks support continued capital returns. The negatives are concentrated in China: a market decline of about 20%, price pressure, and JV impairments indicate lower future profit contribution, leading Bernstein to raise the SOTP discount from 20% to 25%.

Analysis framework

The report uses an earnings review, company guidance updates, segment profitability analysis, BEV product cycle assessment, regional demand and cost structure analysis, capital return evaluation, and an SOTP valuation framework. The valuation uses long-term median multiples for Cars & Vans, incorporates the market value of the Daimler Truck stake, and then applies a higher discount to reflect uncertainty in China, macro conditions, competition, and electrification.

Methodology notes

• Valuation methodsSOTP

  sum-of-the-parts valuation

  Bernstein continues to use SOTP valuation, valuing Mercedes Cars & Vans using long-term median EV/Sales and EV/EBIT multiples and including the value of the Daimler Truck stake; due to rising uncertainty in the China business, the SOTP discount was increased from 20% to 25%.

• earnings_reviewconsensus comparison

  earnings versus consensus comparison

  The report compares 2Q26 revenue, adjusted EBIT, margin, and industrial free cash flow with company-compiled consensus to assess earnings quality and market reaction.

• strategic_analysisproduct cycle and cost competitiveness

  product cycle and cost competitiveness assessment

  The report evaluates the impact of MB.EA, MMA, MB.OS, new BEV models, ADAS features, and low-cost capacity expansion in Hungary and elsewhere on volume, brand positioning, and margins.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MBG.GR

  covered_company

  Strengths

  2Q26 adjusted results beat consensus, Vans margins are strong, net industrial liquidity is ample, BEV is accelerating in Europe, and capital returns are substantial.

  Weaknesses

  Passenger car volume and revenue guidance are under pressure, contribution from China JVs is declining, a large non-cash impairment was recognized in 2Q26, and there is no clear catalyst for restoring historical high-single-digit margins.

  Comparison

  Compared with BMW, Mercedes' FY25 BEV mix is only 9.4%, below BMW's 17.9%; however, Mercedes BEV growth is faster in 2026, with global BEV up 51% YoY and Europe up 87% YoY in 2Q26.

  Risks

  China competition and pricing pressure, tariffs and raw material costs, BEV profitability, Germany's high-cost manufacturing base, and macro and geopolitical uncertainty.

• Daimler Truck Holding AG stake

  non-core holding and cash source

  Strengths

  Stake sales contributed €417m of cash flow in 2Q26, and around €600m was sold again in July, providing funding flexibility for buybacks and capital returns.

  Weaknesses

  Monetizing the stake is opportunistic, affected by market prices and execution windows, and cannot fully substitute for improvement in core operations.

  Comparison

  Compared with pure operating cash flow, stake disposals enhance short-term funding sources but are less sustainable.

  Risks

  Market price volatility, risk of selling at a discount, and declining future disposable scale.

• Mercedes-Benz Vans

  business_segment

  Strengths

  2Q26 sales were 94,075 units, up 1% YoY; revenue was €4.45bn, up 5% YoY; adjusted EBIT was €454m, up 3% YoY; adjusted RoS was 10.2%.

  Weaknesses

  Second-half profitability is expected to be lower than in the first half, affected by ramp-up costs and raw material pressure.

  Comparison

  Vans profitability is significantly higher than passenger cars and is an important support for the group's profit quality.

  Risks

  New model ramp-up costs, raw material costs, and demand volatility.

Key data

• RatingMarket-PerformThe report maintains the rating unchanged.
• Target price€56.00Lowered from €61.00, mainly because the SOTP discount increased from 20% to 25%.
• Current price€46.86The date shown in the table is July 28, 2026.
• 2Q26 group revenue€32.1bnAbout 1% above the €31.9bn consensus.
• 2Q26 group adjusted EBIT€2.3bnEquivalent to an adjusted EBIT margin of 7.2%, about 40% above consensus.
• 2Q26 industrial free cash flow€1.1bn51% above consensus, including €417m from the sale of the Daimler Truck stake.
• Passenger car 2Q26 adjusted EBIT margin4.0%Above the 3.5% consensus and within the full-year guidance range of 3%–5%.
• Vans 2Q26 adjusted RoS10.2%Vans revenue was €4.45bn, adjusted EBIT was €454m, maintaining high profitability.
• China-related impairmentapproximately €752mA non-cash valuation adjustment reflecting lower future profit contribution from the China joint venture.
• 2026 xEV mix guidance23%–25%Raised from the previous 21%–23%, supported by BEV momentum in Europe and globally.
• European BEV sales growth+87% YoYManagement said orders for next-generation EVs in Europe are strong.
• Global BEV sales growth+51% YoYGlobal BEV sales were 52,852 units in 2Q26, with BEV mix rising to 12.7%.
• Estimated 2026 capital return€5.8bnBernstein estimates this is the highest absolute amount among covered European OEMs, equal to about 12.9% of market cap.

Impact & implications

The report takes a fairly balanced view on investment implications: near-term earnings outperformance, buybacks, and dividends provide support, and the new BEV product cycle may improve the market narrative around traditional European automakers; however, lower China earnings, declining passenger car volumes, and tariff/cost pressures make margin recovery slower, and the target price cut indicates limited room for valuation re-rating. For MBG.GR, the core focus shifts from a single-quarter earnings beat to the stability of the China profit pool, whether BEV orders can convert into profitable volume, and whether cost pass-through and capital discipline can offset structural pressures.

Risks

• Intense competition, pricing pressure, and declining demand in China are reducing future profit contribution from joint ventures.
• Declining passenger car volumes and lower revenue guidance may limit group revenue growth.
• Tariffs, raw materials, energy, logistics, depreciation, and a higher BEV mix are pressuring margins.
• Although new BEV products have order momentum, whether they can achieve profitable scale still needs to be verified.
• Germany's high labor and energy costs need to be gradually mitigated through productivity improvements, capacity relocation, and negotiations.
• Macro weakness and geopolitical uncertainty may affect premium vehicle demand and supply chains.

What to watch

• Whether passenger car adjusted RoS in 2026 can remain within the 3%–5% range, especially whether the second half lands in the lower half of the range.
• China market volumes, pricing, BBAC equity income, and whether there will be further impairments.
• Conversion of orders for new models such as GLC BEV, C-Class BEV, and CLA electric into deliveries and profits.
• Whether European BEV sales growth and xEV mix can reach the 23%–25% guidance.
• The scale and pricing of further Daimler Truck stake sales and their contribution to buyback funding.
• Execution progress on Germany productivity programs, low-cost capacity expansion such as Kecskemét, and increasing the local-for-local production ratio.