Mercedes-Benz is facing a tumultuous period as the German automaker announced plans for production investments in Alabama on May 1, 2025. The company revealed it will produce a new "core vehicle segment" at its Tuscaloosa plant, although it did not specify which model will be manufactured. This move comes amid ongoing uncertainty regarding U.S. tariffs imposed by former President Donald Trump, which have significantly impacted the automotive industry.
Trump's 25% tariffs on automobile imports have shaken the global automotive market, and an analysis released by the Center for Automotive Research in early April indicated that these tariffs could lead to an increase of approximately $108 billion in costs for U.S. automakers by 2025. In light of these developments, Mercedes has opted to withdraw its profit forecast due to the unpredictable nature of the tariffs.
The Tuscaloosa plant, which currently produces models including the GLE, GLS, GLE Coupé, Mercedes-Maybach GLS, EQE SUV, EQS SUV, and Mercedes-Maybach EQS SUV, plays a crucial role in Mercedes's operations, employing over 6,000 people. The facility produced around 260,000 vehicles last year and is integral to the company’s strategy in the U.S. market.
Mercedes-Benz's recent financial results reveal a stark picture: the company reported a staggering 43% drop in profits during the first quarter of 2025, a decline attributed to both the uncertain U.S. tariff environment and faltering demand in key markets like China. The group profit fell to 1.73 billion euros, while sales decreased by 7% to 33.2 billion euros. Additionally, the operating margin for passenger cars dropped to 7.3%, down by 1.7 percentage points.
Despite these challenges, some analysts remain cautiously optimistic. While the DZ Bank described the results as "solid," RBC Capital Markets has lowered its price target for Mercedes-Benz shares. The stock is currently regarded as being in crisis, with the company grappling with not only tariff uncertainties but also a significant decline in vehicle sales, which fell to 446,300 units.
Mercedes-Benz has acknowledged the difficulties posed by the U.S. tariff policy, stating it cannot reliably assess the impact of the tariffs on its financial performance. The company has suspended its forecast for the passenger car division, which highlights the precarious position it finds itself in.
As Mercedes-Benz prepares to introduce a new model in Alabama, aimed at the "core" segment, which includes popular models like the E-Class and GLC, it seeks to reaffirm its commitment to the U.S. market. CEO Ola Källenius indicated that expanding production in the U.S. is a natural step in the company's strategy to deepen its engagement in the region. This new model is expected to cater specifically to U.S. customers and will begin production in 2027.
In the context of the current economic climate, Mercedes faces not only the immediate challenges of tariffs and declining sales but also the broader implications of shifting consumer preferences and growing competition from electric vehicle manufacturers. The company's ability to navigate these turbulent waters will be critical in determining its future success.
Analysts have mixed views on the company's outlook. UBS characterized the current forecast as "not helpful," while Jefferies noted that there are strong fundamentals but little guidance on future performance. The range of analyst price targets varies significantly, from 50 euros to 73 euros, indicating differing levels of confidence in Mercedes's recovery potential.
As the automotive industry braces for potential fallout from ongoing tariff debates, the next few quarters will be pivotal for Mercedes-Benz. The company must not only improve its operational performance but also effectively manage the unpredictable political landscape that threatens its profitability.
Mercedes-Benz is at a critical juncture, and the decisions made now will resonate throughout the company for years to come. The stakes are high, and the path forward is fraught with uncertainty, but the company remains committed to its vision of growth and resilience in a challenging market.
