RBC Capital Markets downgraded Mercedes-Benz Group AG (ETR:MBGn) to “sector perform” from “outperform,” citing near-term risks that overshadow the company’s long-term potential, in a note dated Tuesday.
Analysts noted concerns over U.S. tariffs, a challenging China market, and uncertainty surrounding a €5 billion share buyback, which prompted them to “move to the sidelines and downgrade to Sector Perform from Outperform.”
U.S. tariffs present a significant headwind. Mercedes-Benz relies on imports from the European Union for nearly 60% of its U.S. sales, totaling approximately 193,000 vehicles.
The recently negotiated 15% tariff exceeded investor expectations of 10% and is expected to remain in place.
RBC analysts said, “Mercedes imports approximately 193K vehicles from the EU to US, representing nearly 60% of their total US sales. We still believe MBG will be eligible for certain carve-outs, but is generally limited given its reliance on exports from the EU.”
U.S. deliveries fell 11.9% year-over-year in Q2 2025 to 74,600 vehicles. The brokerage noted that while some costs may be passed to consumers through price increases on 2026 models, declining volumes and potential reductions in dealer incentives could pressure sales.
China continues to weigh on performance. Deliveries dropped 18.7% year-over-year in Q2 2025 to 140,000 vehicles, while the joint venture Beijing Benz Automotive Co. reported earnings of €111 million, down 63.6% from €305 million a year earlier.
RBC analysts cited multiple pressures, including, “softening housing prices, which disproportionately impact affluent Chinese buyers tied to real estate, as well as the recent luxury tax and retaliatory tariffs on EU imports. Additionally, rising competition from domestic OEMs, particularly in EVs, is a structural challenge for MBG.”
Additional levies, including a 10% luxury tax on vehicles above RMB 900,000 and retaliatory tariffs on EU imports, also affect the company’s high-end models.
The company’s capital return program remains a positive long-term feature but faces constraints. Mercedes-Benz intends to return future free cash flow through dividends, share buybacks, and small-scale acquisitions, including potential monetization of a €7 billion stake in Daimler Truck.
Analysts cautioned, however, that tariffs could reduce free cash flow, limiting repurchases through 2027 to €4 billion.
Cost-cutting initiatives, including a 10% reduction in fixed costs, an 8% reduction in material costs, and a doubling of low-cost country production to 30%, could support margins.
Mercedes-Benz aims for a return on sales above 10% by 2027, up from 6-8% projected for 2025.
Valuation reflects the near-term caution. RBC lowered its price target to €55 from €63, based on a 2x historical trough EV/EBITDA multiple applied to 2026 estimated industrial EBITDA of €16.7 billion.
The brokerage applied an 80% discount to industrial net cash due to buyback uncertainty and credited the 30% Daimler Truck stake and FinCo at 70% book value.
Analysts acknowledged the long-term potential, saying, “While we do like the capital return and cost-cutting profile for Mercedes long term, we are concerned near term over the company’s US tariff positioning as well as a deteriorating situation in China.”
Source :
https://www.investing.com/news/stock-market-news/rbc-downgrades-mercedesbenz-amid-tariff-and-china-pressures-4250553
