Mercedes-Benz Group CEO Ola Källenius delivered full-year 2025 results on February 12, 2026, that read as a genuine shock even by the standards of an industry already absorbing tariff pain: group earnings more than halved year-over-year, hit by roughly €1 billion (about $1.2 billion) in U.S. tariff costs alongside intensifying competition from Chinese automakers in what has long been one of Mercedes’ most important markets. Shares fell 5% on the news. The results made clear that Mercedes, like most of the legacy luxury automakers, had entered 2026 with two problems compounding at once — the direct cost of new U.S. import tariffs, and the slower, structural erosion of its China sales position as domestic Chinese brands closed the gap on both technology and price.
A Second Quarter That Improved, but Guidance That Didn’t
Mercedes’ second-quarter 2026 results, reported July 28, 2026, showed real improvement on the surface: earnings before interest and taxes rose 21.5% to €1.55 billion, and net profit climbed 13.5% to €1.09 billion, even as group revenue slipped 3.3% year-over-year to €32.06 billion. Källenius nonetheless used the same results to lower Mercedes’ full-year outlook, telling investors the company now expects both car sales and group revenue to land slightly below 2025 levels, having previously forecast the numbers would merely hold flat. China weakness remained the central drag cited on the earnings call, and Källenius pointed to Mercedes’ slate of new models arriving in the second half of 2026 as the company’s best chance to reverse the trend, while noting he expected some easing of tariff pressure in the back half of the year compared with the first.
Retreating From an All-Electric Bet
The financial pressure has coincided with a real strategic reset in how Källenius is approaching electrification. Mercedes had previously signaled an aggressive push toward all-electric models across its lineup; the version of that strategy that actually reached showrooms in 2025 and 2026 is notably more hedged — a dual-powertrain approach that keeps combustion and hybrid options running in parallel with new EVs rather than phasing them out on a fixed timeline, a direct acknowledgment that the EV transition is taking longer than Mercedes’ earlier public targets assumed.
The CLA: Proof the Reworked Strategy Can Still Win
The clearest evidence that the recalibrated approach is working came from the electric CLA, which was named European Car of the Year for 2026 — a recognition Källenius called “a proud moment for Mercedes-Benz,” describing the CLA as “the most efficient and the most intelligent Mercedes we’ve ever made.” The electric CLA pairs an 85 kWh nickel-manganese-cobalt battery with DC fast charging up to 320 kW, capable of adding roughly 202 miles of range in ten minutes — genuine engineering competitiveness against the best EVs on the market, not just a defensive hedge. Customer demand has run ahead of Mercedes’ own expectations since the CLA went on sale in Europe in mid-2025, with the order bank already filled well into the second half of 2026, giving Källenius a concrete product win to point to even as the company’s broader earnings picture stays under pressure from tariffs and China competition.
Steering Between Two Structural Headwinds
Källenius’s task through the rest of 2026 is effectively managing two separate, largely unrelated pressures at the same time: U.S. tariff policy, which is outside Mercedes’ control and directly compressed 2025 earnings, and a China market where the competitive threat is structural rather than cyclical, driven by domestic EV makers offering comparable technology at lower price points. The CLA’s early success suggests Mercedes’ engineering can still win against that competition when it ships a genuinely well-executed EV — the harder open question is whether that can happen across enough of Mercedes’ lineup, fast enough, to offset what China and tariffs are taking away.
What This Means for Philippine Founders
Källenius’s dual-powertrain retreat from an all-electric commitment is a signal worth watching for Philippine automotive and mobility founders gauging how fast the broader region, including the Philippines’ own market, might actually electrify: if one of the world’s most technically capable luxury automakers concluded that hedging across combustion, hybrid, and electric was the more realistic near-term strategy, that same caution is a reasonable baseline assumption for planning any EV-dependent business locally. The CLA’s success also underscores a narrower but useful lesson — even in a period of real financial pressure, a single well-executed, genuinely differentiated product can still win decisively against price-focused competitors, which is a more actionable takeaway for a resource-constrained Philippine startup than trying to match a larger rival’s full-line breadth.
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