Mercedes 1Q26 pre-call communication sends a stable signal; rating maintained at Market-Perform

Overview

This report is Bernstein's commentary on Mercedes-Benz Group AG's investor briefing call ahead of the official 1Q26 earnings release. The company will report 1Q26 results on April 29, 2026, and the core message from the call was broadly stable: Cars adjusted sales return is expected to fall within the FY26 guidance range of 3%-5% but near the low end, Vans adjusted sales return is expected to be close to the high end of the 8%-10% guidance, and 1Q26 cash flow remains solid.

Core views

The report maintains a Market-Perform view on Mercedes. Positive factors include sales growth in the US and Europe, Vans margin resilience, better-than-expected BEV order trends, and healthy industrial free cash flow. The main negatives are intense competition in China leading to a sharp sales decline, the impact of certain model phase-outs before replacements, the fact that BEVs have not yet reached margin parity with ICE vehicles, and trade frictions that could affect China demand and profits on US-produced SUVs. Overall, the fundamental information supports the full-year guidance, but is not enough to drive a meaningful re-rating.

Analysis framework

The analysis centers on operating metrics from the 1Q26 pre-call communication, including wholesale sales by region, model mix, xEV and BEV penetration, Vans performance, industrial free cash flow, and regional risks. The valuation section uses Mercedes' long-term median multiples, separately adds the market value of its Daimler Truck equity stake, and then applies a discount for the BEV transition and structural changes in the China market.

Methodology notes

• Valuation methodsLong-term median multiple valuation with stake value adjustment

  EV/Sales and EV/EBIT multiples, Daimler Truck stake value, structural discount

  Bernstein values Mercedes using its long-term median multiples, with EV/Sales weighted at 27% and EV/EBIT at 3.6x, and adds the current market value of Mercedes' 30% stake in Daimler Truck. It then applies a 20% discount to the equity value to reflect the BEV transition and structural changes in the China market, resulting in a €61 target price.

• RatingBernstein equity rating framework

  Market-Perform

  Within Bernstein's framework, Market-Perform indicates that the stock is expected to trade within plus or minus 15 percentage points versus the relevant market index over the next 12 months.

Asset mapping & comparison

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

• Mercedes-Benz Group AG (MBG.GR)

  Covered company and rating target

  Strengths

  The brand and top-end vehicle mix still provide support, sales growth in Europe and the US is solid, Vans margins are near the high end of guidance, industrial free cash flow is stable, and orders for the electric CLA, GLB, and GLC are strong.

  Weaknesses

  China wholesale sales fell 27% y/y, phase-outs of entry-level models before replacements weighed on sales, global xEV share came under sequential pressure because of PHEV phase-outs, and BEVs and ICE vehicles have not yet reached margin parity.

  Comparison

  The report does not provide a detailed peer valuation comparison, but the rating framework emphasizes 12-month performance versus the broader European market benchmark.

  Risks

  Competition in China, trade frictions, BEV margin dilution, and US-China trade tensions affecting profits on US-produced SUVs.

• Daimler Truck stake

  Valuation component

  Strengths

  Mercedes holds a 30% stake in Daimler Truck, and the report adds this stake's current market value separately in the target price calculation.

  Weaknesses

  This value contribution comes from the stake itself and does not directly resolve pressure on Mercedes' core automotive margin.

  Comparison

  Included as non-core stake value alongside the vehicle business multiples valuation.

  Risks

  Volatility in Daimler Truck's market value will affect this part of the valuation contribution.

Key data

• RatingMarket-PerformBernstein explicitly assigns Mercedes a Market-Perform rating.
• Target price€61Derived from long-term multiple valuation, the value of the Daimler Truck stake, and a 20% structural discount.
• 1Q26 group wholesale sales499.7k unitsUp 9% from 4Q25's 459.4k and down 6% y/y.
• China wholesale sales-27% yoyReflects intense competition, weak consumer sentiment, and the phase-out of some entry-level models ahead of replacements.
• US wholesale sales81,100 units, +20% yoyStill below retail sales of 87,050 units, indicating room for further dealer inventory restocking.
• European car wholesale sales+7% yoySupported by 9% y/y growth in the German market.
• Global xEV share19%Below 1Q25's 20%, mainly due to planned phase-outs of certain PHEV models.
• Europe xEV share41%Above 1Q25's 37%.
• 1Q26 BEV sales+9% yoyMomentum in the electric CLA strengthened, and the new electric GLC has started production and will be delivered in 2Q26.
• E-van sales6.1k units, +29% yoyBEVs accounted for 8% of the Vans business, up from 6% in 1Q25.
• FY25 industrial free cash flow€5.4bnFY26 guidance is slightly below this level.
• FY26 industrial free cash flow guidance converted€4.1-4.9bnThe report says 1Q26 performance is healthy and consistent with the level needed to achieve the full-year guidance.

Impact & implications

For investors, the 1Q26 pre-call communication reduces the risk of near-term downside surprises, especially given the stable Vans margin and cash flow profile, but it does not provide a strong basis for an upward revision. The investment case for Mercedes still depends on three variables: whether the product mix improves after top-end model refreshes, whether competition and demand in China can stabilize, and whether BEV order growth can translate into deliveries without materially diluting margins.

Risks

• Trade disputes between the EU and China could curb Chinese consumers' purchases of German-brand vehicles.
• Higher BEV sales may dilute margins because the company has not yet achieved margin parity between BEVs and ICE vehicles.
• Tensions between the US and China could affect profits on SUVs produced in the US.
• Intense competition in China and weak consumer sentiment could continue to pressure sales and pricing.
• Rising oil and gas prices in the Middle East could make some consumers hesitant about ICE models, and if sustained, could hurt profitability.

What to watch

• When Mercedes reports its official 1Q26 results on April 29, 2026, whether Cars and Vans adjusted RoS fall near the low and high ends of their guidance ranges, respectively.
• Whether wholesale sales and average transaction prices in China stabilize.
• Whether the share of top-end vehicles rebounds from 1Q26's 14.7% after the new S-Class and new GLS ramp up.
• Whether orders for the electric CLA, GLB, and GLC convert smoothly into deliveries in the second half of the year.
• Whether 1Q26 industrial free cash flow continues to support the FY26 full-year range of about €4.1-4.9bn.
• Whether the gap between wholesale and retail sales in the US leads to further dealer restocking.