STUTTGART (dpa-AFX) - Automaker Mercedes-Benz has set cautious targets for the new year in its most important division, passenger car manufacturing. The DAX-listed company announced on Wednesday that the adjusted margin before interest and taxes in the passenger car business is expected to land between 3 and 5 percent this year, meaning that at best, it will only reach last year's level. The Stuttgart-based group had previously stated it would not aim for a double-digit margin again until 2027. Analysts currently forecast a value of 5.8 percent for 2026, while last year the margin slipped by just over 3 percentage points to 5.0 percent.

Overall, revenue is expected to remain roughly at 2025 levels, with passenger car sales also holding steady compared to the previous year. However, earnings before interest and taxes are expected to rise significantly. This is partly due to cost savings from the workforce reduction program, and partly because the one-off costs for this program will not recur at last year's level. For the job cuts—for which Mercedes has not specified a target number of positions—the automaker set aside around 1.6 billion euros in 2025.

Payouts for severance agreements will, however, weigh on free cash flow in the industrial business—that is, excluding financial services. This figure is expected to decline slightly again—last year, this key metric for investors had already dropped noticeably from 9.2 to 5.4 billion euros.

Last year, the Swabian automaker earned significantly less, mainly due to US tariffs and weak business in what was once a growth market, China. Increased tariffs alone cost around one billion euros. Adjusted for special effects, earnings before interest and taxes fell by 40 percent to 8.2 billion euros.

The Stuttgart-based company also struggled with a weak US dollar, with currency effects costing the passenger car division 1.5 billion euros alone. As the average selling price per car dropped from 71,000 to 68,100 euros, the adjusted operating margin in the division fell by 3.1 percentage points to 5.0 percent. Analysts had expected profitability to be slightly lower at 4.8 percent.

The share price fell by 2.3 percent in pre-market trading on the Tradegate platform compared to the previous evening's Xetra closing price. This raises the risk of a worsening stock market performance for the current year. Over a three-year period, the share price has lost about one fifth of its value.

With total revenue down 9.2 percent to 132.2 billion euros, group earnings fell by almost half to 5.3 billion euros. The cost-cutting program also weighed heavily, with high special expenses. The dividend is set to drop from 4.30 euros to 3.50 euros.

The financial results were in line with forecasts and were supported "by a clear focus on efficiency, speed, and flexibility," said Mercedes CEO Ola Källenius, according to the statement. "We are ready for 2026," the executive said. With a clear plan and a highly competitive product portfolio, Mercedes is consistently driving its transformation forward.

In total, Mercedes sold around 2.16 million passenger cars and vans last year. Of these, just over 1.8 million were passenger cars, representing a nine percent decline compared to 2024. The drop was particularly sharp in China, at 19 percent. China remains Mercedes' most important market, with almost one third of all passenger cars sold there in 2025.

The company had already responded to the tense situation a year ago by launching a cost-saving program. Even in 2024, group earnings had fallen significantly year-on-year. Revenue and sales had also already declined at that time.

The cost-saving program is intended to help restore profitability. By 2027, production costs are to be reduced by ten percent compared to the baseline. In addition, material costs will be optimized. Fixed costs are also to be reduced by a further ten percent by 2027. A severance program for employees in indirect areas, i.e., those not in production, is also expected to help./men/rwi/nas/stk