Mercedes-Benz cut its annual profit forecast - the Chinese market and rising costs are intensifying the pressure

Mercedes-Benz shares fell 5% on Tuesday after the German automaker cut its full-year financial guidance. The company attributed the decision to intensifying challenges in the Chinese market and an expected rise in fourth-quarter costs, including higher materials prices.

Under its updated forecast, the Stuttgart-based automaker now expects Mercedes-Benz Cars' adjusted return on sales to come in at 2–3%, down from a previously anticipated 3–5%.

The group's operating profit before interest and taxes (EBIT) is now likely to remain at last year's level, rather than the significantly higher figure previously projected. The forecast for industrial free cash flow was also lowered: the company now expects it to fall well below last year's level, whereas the previous estimate pointed to only a moderate decline.

At the same time, the outlook for Mercedes-Benz's van business and financial services division remained unchanged. The vans business's return on sales is still expected to be in the 8–10% range, while the return on equity forecast for the financial services division stands at 12–14%.

The preliminary third-quarter results exceeded analysts' expectations on several fronts. Mercedes-Benz Cars' adjusted return on sales came in at 2.5%, compared with the market's forecast of 2.4%. The vans business posted a figure of 9.4%, versus analysts' expectations of 9.1%.

The financial services division's adjusted return on equity reached 13.8%, surpassing the expected 12.4%. The group's operating profit (EBIT) totaled €1.77 billion, compared with analysts' projection of €1.6 billion.

However, industrial free cash flow came in at just €172 million, falling well short of the €422 million forecast. This result suggests that despite better-than-expected quarterly performance on several metrics, the company's cash flow situation remains a challenge.

Mercedes-Benz's lowered guidance highlights the pressure facing automakers: amid competition and shifting demand in China, rising costs are making it harder to sustain profitability.