Mercedes to source its China parts in China, squeezing suppliers
Mercedes-Benz has cut its car-margin forecast to 2-3 per cent, expects to break even in the fourth quarter and, from the electric E-Class in 2027, will source almost everything locally for its Chinese production.
Ola Källenius, the chief executive, said on 28 October that Mercedes will in future source almost all parts in China for its Chinese production, starting with the electric E-Class in the second half of 2027. At the same time the company will restart its severance programme in Germany in December.
What happened
Mercedes has so far used a hybrid model in China, with some parts and technology coming from Europe. It is abandoning that model to cut variable costs significantly. Mr Källenius points to price pressure: more than 100 brands compete in China. The figures show the strain. Car sales fell by 8 per cent in the third quarter, to 407,000 vehicles, the decline coming entirely from China; outside China sales rose by 1 per cent. The car division's adjusted return on sales almost halved, from 4.8 to 2.5 per cent, and adjusted operating profit fell by 51 per cent to €0.6bn. The average selling price slipped from €66,800 to €64,500 and inventories rose by €2.1bn. Electric cars were the bright spot, at a record 68,000 units, up 61 per cent. For 2026 Mercedes now expects group earnings at last year's level rather than significantly above; Harald Wilhelm, the finance chief, expects the car business to break even in the fourth quarter. Mr Källenius makes further investment in Germany conditional on a significant gain in productivity.
What follows
Assessment: German suppliers lose part of the business they have done through German brands' production in China. If BMW and Volkswagen follow, the effect multiplies; according to dpa-AFX, VW has also announced a new China strategy. Competition among German sites for investment intensifies, now explicitly tied to productivity. The renewed severance programme shows that job reduction continues, though the company gives no figure. For banks financing suppliers, risk rises in regions such as Baden-Württemberg. Mercedes plans to present decisions on technology, products and operations in early 2027.
What changes in practice
- Suppliers
- From 2027 almost all parts for Mercedes cars built in China are to come from China. Exports there lose weight.
- Employees
- The severance programme in Germany restarts in December. Further investment depends on productivity, says Mr Källenius.
- Lenders
- Falling China orders hit first those suppliers most dependent on German carmakers.
What to watch
- Capital-markets update in early 2027 with decisions on technology, products and sites
- Take-up of the severance programme from December
- Whether BMW and VW also move sourcing for China to China
Sources
- Mercedes-Benz Group: 3rd Quarter Results 2026
- Investing.com: Earnings call transcript Mercedes-Benz Q3 2026
- Investing.com: Mercedes-Benz Q3 2026 slides: profit rises but China, cash flow weigh
- onvista: Mercedes Benz legt im dritten Quartal beim Ergebnis zu (28.10.2026)
- finanzen.net: dpa-AFX-Überblick Unternehmen vom 28.10.2026