Mercedes-Benz (ticker MBG, shares up 3.57%) has lowered its full-year sales forecast, becoming the latest automaker to issue a warning as mounting operating pressures in the Chinese market take a toll. The company recorded significant asset impairments for its China business, dragging down profits in its core vehicle segment.

The German luxury automaker now expects full-year vehicle sales to be slightly below last year's levels, with overall group revenue also marginally lower than the prior year. This represents a downgrade from Mercedes-Benz's previous goal of achieving flat sales and revenue compared to the previous year.

"In the Chinese premium and luxury car market, local automakers have ignited a sustained and intense price war, placing significant pressure on the sales growth of many international brands," Mercedes-Benz stated.

The company booked an asset impairment of €704 million (equivalent to $800.3 million) for its China business in the second quarter. As a result, earnings before interest and taxes (EBIT) for the automotive division plummeted to €49 million from €783 million in the same period last year. Mercedes-Benz specifically noted that the impairment would not result in a corresponding cash outflow.

Affected by intense industry competition, cautious consumer spending, and frequent model replacement cycles, Mercedes-Benz's sales in China plunged by 30%, a decline that completely offset sales growth in all other overseas markets.

Geopolitical tensions and trade barriers continue to create uncertainty, with the Middle East conflict further escalating risks. Mercedes-Benz stated that its performance guidance is based on the assumption that the Middle East war will not fully reignite in the second half of the year.

Volkswagen and its subsidiary Audi have both recently lowered their full-year sales targets and announced plans to increase cost-cutting efforts. This year, the Chinese market has seen a surge of new models from domestic brands, leading to a prolonged price war among automakers vying for customers, placing multiple foreign auto companies under operational strain. BMW also lowered its full-year sales forecast last month.

However, Mercedes-Benz is maintaining its other financial guidance and expects its full-year electric vehicle sales share to be better than previously forecast. The company remains optimistic about a significant improvement in EBIT, maintaining its target for an adjusted return on sales in the automotive business at 3% to 5%.

Mercedes-Benz plans to drive growth through the launch of over 40 new models between 2025 and 2027, while simultaneously intensifying its global production optimisation efforts, with a particular focus on improving production efficiency at its German home plants.

Last year, Mercedes-Benz announced a series of efficiency-enhancing measures, including layoffs and relocating some production capacity from Germany to lower-cost countries like Hungary, along with reducing energy consumption, increasing automation, and streamlining logistics costs to continuously optimise per-vehicle production costs.

CEO Ola Källenius said, "The market response to our new models has been excellent. In the second half of the year, we will accelerate the launch of multiple new models while continuing to optimise costs and improve production efficiency."

For the second quarter, Mercedes-Benz reported revenue of €32.06 billion, a 3.3% decline year-on-year. EBIT was €1.55 billion, compared to €1.27 billion in the same period last year. According to a consensus estimate from analysts surveyed by FactSet, the market expected EBIT of €1.51 billion on revenue of €31.88 billion; actual profit came in higher than expectations. The financial report showed that the adjusted return on sales for the automotive business was 4%, down from 5.1% last year.