Earlier this month, President Trump and the leaders of Mexico and Canada reached an agreement to delay the implementation of 25% tariffs on goods from these neighboring countries for one month, except for a 10% carve-out for Canadian oil.
The proposed tariffs would have resulted in higher prices for new car buyers in the United States, given that many vehicles sold in the U.S., including pickup trucks made by Detroit’s Big Three and family cars by Japan’s Honda and Toyota, originate from factories in Canada and Mexico.
While the tariffs on imported goods have been postponed until late March, the Trump administration is negotiating solutions for broader issues beyond trade. However, additional tariffs on essential car-building materials present new challenges to an already pressured industry.
An executive at a prominent automaker has warned that this new threat to the auto industry could significantly impact its financial performance.
Mercedes-Benz’s CFO, Harald Wilhelm, indicated during the company’s Capital Market Day Presentation on February 20 that increased tariffs in the U.S. could severely affect Mercedes-Benz’s financial outcomes. According to a report from Automotive News, Wilhelm highlighted that if tariffs on European car exports to the U.S. were raised from 2.5% to 10%, the company could lose one percentage point from its profit margin.
Mercedes-Benz announced that its passenger car division’s adjusted earnings before interest and taxes (EBIT) for 2024 were €8.7 billion, with an operating margin of 8.1% on €108 billion in revenue. If the operating margin fell by one percent to 7.1%, it would reduce EBIT by approximately one billion euros.
Currently, the Trump administration is contemplating harsher penalties. On February 18, President Trump stated in Palm Beach, Florida, that he intended to impose a 25% tariff on auto imports.
Mercedes-Benz CEO Ola Kallenius is aware of the President’s proposed tariffs, suggesting that the 10% figure is just an example and that negotiations between the EU and the U.S. could potentially result in less severe levies. He stated, “We’re preparing for all sorts of scenarios.”
In a statement, the Mercedes CFO mentioned that the company is implementing measures to navigate the evolving geopolitical situation. Wilhelm emphasized that to endure dynamic geopolitical environments and challenging markets, efficiency measures are being intensified, paired with strong product substance and a robust product launch plan. The automaker aims to recalibrate its operating point and achieve double-digit margins soon.
To mitigate potential tariffs and adapt to the “dynamic geopolitical environment,” Mercedes plans to enhance its “local-for-local” production in markets like China and the United States, ensuring vehicles sold in these regions are manufactured domestically. The company aims to increase localized production from 60% to 70% by 2027, which will include producing another model at its Tuscaloosa, Alabama factory.
This vehicle, considered one of Mercedes’ “core” models, may be the C-Class or E-Class sedan. Currently, the Alabama plant manufactures some of the brand’s larger SUVs, popular among U.S. consumers, such as the GLS, the GLE, the GLE Coupe, as well as the EQE and EQS electric SUVs. However, Kallenius cautions that these changes will take time, noting that relocating a plant could take two to four years but affirming a commitment to grow in the U.S.
Mercedes-Benz is adjusting amidst reports of lower earnings and a 40% decline in its automotive division due to lower sales in critical Chinese and German markets. In the coming year, the luxury automaker anticipates its operating margin may drop as low as 6%.
Other automakers, including Ford and General Motors, have voiced similar concerns. Ford CEO Jim Farley remarked that Trump’s recent actions, including the deflection of tariffs on Mexican and Canadian imports, present more challenges than relief to automakers. General Motors CFO Paul Jacobson, speaking at a Barclays conference on February 19, warned about the potential operational costs associated with constantly relocating plants in response to tariff changes.
The Mercedes-Benz Group is publicly traded on OTC markets in the United States under the ticker MBGAF and on the Frankfurt Stock Exchange as MBG.
