S&P Downgrades Mercedes-Benz to A- as China Sales Drop 29%, Outlook Stays Negative
S&P Global Ratings cut Mercedes-Benz Group AG one notch to A- from A on 6 November, citing a steep, market-driven drop in China sales and a tougher premium market there.
The agency now expects the carmaker’s adjusted EBITDA margin to stay below 10% in 2027 and 2028, with free operating cash flow approaching 3% of sales only by 2028. The outlook stays negative, so a further cut remains possible if the product push falls short; the cushion is €31.0 billion of net liquidity in the industrial business.
S&P lowers every rated entity by one notch and keeps a negative outlook
The long and short term issuer credit ratings on the group and its rated subsidiaries fall to A-/A-2 from A/A-1. The senior unsecured issue ratings on its debt fall to A- from A.
The action covers the parent and six finance and sales subsidiaries, among them Mercedes-Benz International Finance B.V. and Mercedes-Benz Finance North America LLC. Commercial paper programmes move to A-2, including a €10 billion euro programme.
The agency had already put the ratings on negative outlook. The company’s own ratings history dates that change to 1 August 2025, when the agency kept the rating at A.
The group had been rated A by the agency since May 2023. The cut returns it to the A- level it carried from July 2021 until May 2023.
S&P ratings on Mercedes-Benz Group since July 2021
| Date | Rating | Outlook |
|---|---|---|
| 27 Jul 2021 | A-/A-2 | Stable |
| 16 Nov 2022 | A-/A-2 | Positive |
| 5 May 2023 | A/A-1 | Stable |
| 1 Aug 2025 | A/A-1 | Negative |
| 6 Nov 2026 | A-/A-2 | Negative |
Long term and short term issuer ratings; dates and ratings from the company’s ten-year ratings overview, and the 6 November 2026 action from the agency’s ratings list.
China’s slide drags the agency’s margin path below 10%
The agency points to the profit warning the group issued before its third quarter results. That warning, it says, reflects a steep drop in China volumes, a more competitive premium market there, tariffs and prolonged cost inflation.
Unit sales in mainland China fell 29% in the first nine months, the agency said. It expects China’s light vehicle sales to fall 16% to 19% this year. It sees them shrinking further through 2028.
China has been a highly profitable market for the group, the agency notes. Dividends from it exceeded €1 billion in 2024, alongside revenue from imported top end models, parts sales to the Chinese joint venture and royalties.
The market’s decline is a key reason the agency expects an adjusted EBITDA margin below 10% over 2027 and 2028. That is materially below the 15% to 16% recorded in 2021 to 2023.
The agency sees a structural change in China’s premium and luxury market. Like BMW and Audi, the group keeps losing share in China’s premium segment. Domestic brands such as Aito, Xiaomi and Li Auto have eroded demand for its S-Class, G-Class, Maybach and AMG models.
Combustion engine cars, the high margin part of the range, will still make up more than 95% of the group’s China sales in 2026, by the agency’s estimate. The agency expects the gradual shift away from those cars, a weak local market and intense competition in electric vehicles to constrain the group’s China earnings over the next few years.
Cash flow is the second pressure point. The agency puts free operating cash flow at an estimated 2% of sales this year and next. Its previous threshold was well above 3%.
It still expects the ratio to approach 3% by 2028. A richer sales mix from the top end models and lower research and capital spending should drive that recovery, the agency said.
The company’s own figures show where China weighs
The group’s interim report shows the scale of the China loss. Mercedes-Benz Cars sold 297,037 vehicles there in the first nine months, down from 418,305, a figure that includes the Beijing Benz joint venture.
On The Edge’s calculation, that loss of 121,268 cars exceeds the division’s total decline of 97,000. Outside China, unit sales rose 2.6% to 947,390.
China’s share of the division’s sales fell to 23.9% from 31.2%. North America rose 11% and Europe 5%. Within Europe, Germany gained 9%.
Mercedes-Benz Cars unit sales by region, January to September (in thousands)
| Region | 2025 | 2026 | Change |
|---|---|---|---|
| Europe | 469.1 | 493.7 | 5% |
| of which Germany | 149.7 | 163.6 | 9% |
| North America | 237.5 | 264.2 | 11% |
| of which USA | 212.8 | 238.3 | 12% |
| Asia | 564.5 | 423.2 | -25% |
| of which China | 418.3 | 297.0 | -29% |
| Other markets | 70.3 | 63.4 | -10% |
| Total | 1,341.4 | 1,244.4 | -7% |
Regions as the company reports them; Europe is the EU, the UK, Switzerland and Norway; China includes Beijing Benz Automotive, an equity method investment; changes as printed.
Our 28 October roundup set out the third quarter results and the guidance cut of 27 October. The car division now expects an adjusted return on sales of 2% to 3%, and group EBIT at the prior year level.
The nine-month accounts carry the cash side of the story. Industrial free cash flow fell 44% to €3.13 billion. It included restructuring outflows the company puts at an estimated €1.1 billion, mainly for voluntary severance in Germany.
That figure was helped by lower tax payments and €1.0 billion from a partial sale of Daimler Truck shares. Shareholder returns through dividends and buybacks were €5.2 billion over the same period.
Industrial net liquidity ended September at €31.0 billion, against €32.2 billion at the start of the year. The pension plans’ funding ratio rose to 119% from 113%.
Mercedes-Benz Group nine-month figures (in € millions)
| Measure | 9M 2025 | 9M 2026 |
|---|---|---|
| Revenue | 98,524 | 94,361 |
| EBIT | 4,312 | 5,224 |
| Adjusted EBIT | 6,633 | 5,847 |
| Net profit | 3,878 | 4,037 |
| Industrial free cash flow | 5,589 | 3,131 |
| Adjusted industrial free cash flow | 5,966 | 4,298 |
| Industrial net liquidity, period end | 32,162 | 31,025 |
Nine months to 30 September, as printed in the interim report; net liquidity is at 31 December 2025 and 30 September 2026.
In The Edge’s reading, the pressure on the rating comes from earnings and cash generation in the industrial business. Its free cash flow of €3.13 billion over nine months fell short of the €5.2 billion returned to shareholders. The industrial business still ended September with €31.0 billion of net liquidity.
Cost cuts and new models carry the case for stability
The agency calls cost reduction the group’s main line of defence. It says the benefits have been largely offset by material cost inflation and weaker absorption of fixed costs as production volumes fell.
A return to its earlier expectation of an EBITDA margin above 10% will likely need more restructuring of the production footprint and more localisation, the agency said. It expects exceptional charges along the way.
The company puts its fixed cost reduction since 2019 at an estimated 25%, and it has intensified its productivity measures since June 2026, with a focus on its German locations.
The agency says the group appears to be turning a corner in European electric cars, led by the electric CLA, the electric GLC and the new electric C-Class. It warns that a rising electric share dilutes margins, particularly as the group plans more capacity at its new Kecskemét plant in Hungary and less in Germany.
A further downgrade could follow if the new products fail to support sales and profitability, leaving the adjusted EBITDA margin below 10% or adjusted free operating cash flow below 3% of sales in 2028 and after. The outlook could return to stable if China sales improve durably, market shares in other key markets stay broadly stable and both ratios recover on a sustainable basis.
Fitch affirmed the group at A on 4 August 2025 and withdrew all its ratings the same day for commercial reasons.
Our 6 November article set out S&P’s one notch cut of BMW AG to A- the previous day, also on China and also with a negative outlook.
What to watch: Mercedes-Benz Group hosts its Sustainability Update 2026 on 10 November from 10:30 GMT. Its voluntary severance programme for indirect functions in Germany is offered again from December.
Method: The rating action is S&P Global Ratings’ research update of 6 November 2026 (15:25 GMT) and its ratings list of the same day; the earlier outlook revision and the rating history are from Mercedes-Benz Group’s ratings overview, read 6 November 2026, and the Fitch action from Fitch Ratings’ release of 4 August 2025; company figures are from the Mercedes-Benz Group Interim Report as of 30 September 2026, its results release of 28 October 2026 and its ad hoc release of 27 October 2026; percentages, shares and differences not attributed to a source are The Edge’s calculations.
Sources: S&P Global Ratings, Mercedes-Benz Group, Fitch Ratings, The Edge.
