BMW May Be Stronger, Mercedes Sounds More Confident
Happy Friday. This is the first Weekly Read—a short synthesis of what moved on Road & Reason this week and what it means. The week’s published work follows in full.
Second-quarter earnings are a focus this week and in the coming weeks. This week covered BMW and Mercedes-Benz. Both face significant challenges in China, but each is responding differently.
BMW’s sales roughly tracked the contracting Chinese market during the first half, and its new CEO is using the company’s weak economics to justify a broader operating reset. Mercedes lost meaningful ground to the market, but management still appears to believe its existing product and efficiency plans will restore sales and margins. BMW may be in the stronger position yet is changing its operating model; Mercedes sounds more confident in its plan.
Road & Reason now organizes its analysis differently. Each Brand page presents a living read on the company, structured around the major strategic uncertainties it faces—its “Big Questions.” Evidence posts track and assess developments that bear on those questions, Articles draw broader conclusions, and Earnings evaluations use the company’s reported results and guidance to reassess where the brand stands.
Brand pages are now live for BMW, Mercedes-Benz, and Tesla. Ferrari, Genesis, Lexus, Porsche, and Rivian will follow in the coming weeks.
In This Week’s Read
Mercedes-Benz · Earnings
- Mercedes-Benz Q2 2026 Earnings
BMW · Earnings
- BMW Q2 2026 Earnings
The Read
Mercedes-Benz · Earnings
Mercedes-Benz Q2 2026 Earnings
Mercedes’ new BEVs are gaining traction in Europe, but weak economics and a failed first China test of its next-generation BEVs leave management more confident in its strategy than the results support
Mercedes-Benz Group management called its second-quarter results “solid,” but the Cars business tells a weaker story: decline in China overwhelmed better performance elsewhere while the brand lost relative position. The China market’s discouraging initial response to Mercedes’ first next-generation BEV heightens concerns about the brand’s ability to recover there.
Mercedes-Benz Cars sold 417,765 vehicles in the quarter, down 8% from a year earlier. Europe rose 4%, the U.S. rose 10%, and Mercedes says global sales excluding China increased 2%. China fell 30% in Q2, with declines across every product category. Full first-half China sales declined 28.3%—roughly eight points worse than the overall China market decline cited by BMW Group, which broadly tracked that market.
Rising sales outside China did not translate into stronger Cars business economics. Revenue fell 5%, adjusted EBIT fell 26%, and adjusted return on sales declined to 4%. Mercedes says fixed costs were already 19% below 2019 levels as of 2024, net of inflation, helping cushion the margin while pricing and mix remain weak. The Next Level Performance program builds on that base with further fixed- and variable-cost reductions and lower investment. Top-End segment volume, which includes S-Class models and the G-Class (G-Wagon), fell 10% and did not provide the mix support Mercedes’ strategy requires. China-related impairments reduced reported Cars EBIT to €49 million and signal that management now expects less future profit from its joint ventures. Mercedes expects second-half profitability below the first half, while relying on improved Top-End mix and pricing support—neither visible in Q2—to meet its fourth-quarter expectations.
The product evidence is encouraging in Europe, but negative in China. Mercedes’ BEV sales rose 51% globally and 87% in Europe, while European BEV orders more than doubled.
But the first meaningful China market test of its new BEVs has seemingly failed. The CLA L combines Mercedes’ latest technology—the MMA architecture, MB.OS, and Momenta driver assistance—with a long-wheelbase body tailored to China. Yet available Chinese-market data put its first-half volume at only around 650 units. Mercedes’ stronger global technology and localization inputs did not translate into demand.
Because the CLA sits in Mercedes’ refocused Entry Luxury segment, the result does not yet isolate the failure. It may reflect the CLA’s position in a fiercely contested part of the market, a broader weakness in Mercedes’ localized product proposition, or both.
The forthcoming Core Luxury GLC L should provide a more discriminating test. Management is optimistic about the locally produced electric GLC L, revealed in April and expected to launch in China later this year, which adds China-specific five- and six-seat layouts and localized digital systems. CEO Ola Källenius said, “Everything that makes a Mercedes a Mercedes” is in the GLC L, and made it clear that Mercedes would work hard to protect pricing and “wouldn’t buy market share at the expense of burning cash.” The GLC L is the next test of whether Mercedes’ China-specific product and technology strategy can rebuild demand there at sustainable pricing.
The open question is diagnostic rather than operational. Management appears convinced that its product strategy and Next Level Performance efficiency plan remain fundamentally sound: that execution, timing, and external conditions explain the gap, and staying the course will restore Mercedes’ position in China. The results leave open the more threatening possibility that Mercedes’ brand proposition, portfolio strategy, or response may not be enough.
The contrast between Mercedes’ Q2 framing and BMW’s response to its earnings is noteworthy. BMW delivered an almost identical global-volume decline, but reported stronger growth in Europe and the United States during Q2 and, over the half, a materially smaller decline in China. Its new CEO called the first two quarters “not satisfactory” and communicated an operating reset; Mercedes called Q2 “solid” and continues to defend its established plan.
That does not establish that BMW’s core brand is healthier—its brand-only economics are not disclosed. It does reveal a striking difference in diagnosis and response: BMW is treating weak results as grounds to intensify structural change across its organization, processes, and cost base, while Mercedes appears to regard weaker relative performance in China as a problem its existing product and efficiency plans can still solve.
Mercedes’ new BEVs are gaining early traction in Europe—meaningful product progress—but their first China test has failed. Management’s confidence currently runs ahead of results.
The earnings read against Mercedes’ Big Questions:
- Luxury Economics and Portfolio Discipline moves materially negative. Negative net pricing, a lower average selling price, weak Top-End volume, and a 4% adjusted Cars margin reinforce the pricing-power problem. Earlier cost reductions are cushioning the result, and Next Level Performance promises more, but the economics have not recovered.
- Technology as New Mercedes-ness receives mixed evidence. European BEV demand supports the product direction, but the CLA L shows that stronger technology and localization have not yet created differentiated commercial value in China. The electric GLC L results are the next proof point there.
- China and Localized Luxury moves materially negative. Mercedes underperformed the China market in the first half and lowered its profit guidance. Its decision to protect pricing rather than buy share is the right constraint. The forthcoming GLC L is the next model to watch as Mercedes tests whether localized products and technology can rebuild profitable, brand-consistent relevance, pricing power, and volume.
BMW · Earnings
BMW Q2 2026 Earnings
BMW’s product strategy is holding, but deteriorating economics have prompted management to pursue a faster, more responsive operating model
BMW’s second quarter earnings are a case study in how traditionally sound strategy and competent execution struggle against today’s market conditions.
The brand has navigated the EV transition effectively, recorded solid sales increases in some of its largest markets, is seeing strong demand for its initial Neue Klasse models, and has a healthy product pipeline. Deliveries increased 7.6% in Europe and 11.9% in the U.S. during the quarter. European EV sales rose 38%. Orders for the iX3, the first Neue Klasse model on sale, are approaching 100,000.
Yet BMW reported a 35% drop in quarterly pretax earnings, to €1.7 billion ($1.95 billion) and an automotive operating margin of 2.3%, down from 5.4% the prior year. BMW attributed a €1.8 billion negative year-over-year effect on Automotive EBIT to volume, model mix, and pricing. CFO Walter Mertl said a large share came from China, where deliveries fell 30.2% amid intense price competition. China is the main reason for June’s guidance cut and remains the largest operating problem.
Other pressures compounded the operating decline, so the 2.3% margin is not a direct measure of BMW’s underlying product strength. BMW attributes approximately 1.25 percentage points of first-half and second-quarter margin pressure to tariffs and another 1.2 points to BMW Brilliance purchase-price-allocation amortization. Currency and commodities added further pressure, while earlier Neue Klasse investment began flowing through the P&L as higher depreciation and amortization. These factors prevent the reported margin from serving as a simple verdict on either BMW’s differentiation or Neue Klasse economics.
New CEO Milan Nedeljković’s statement makes it clear BMW believes the earnings pressure reflects more than a tough cycle and requires a structural response. He called the results “not satisfactory” and said BMW would examine its core business model, become leaner, reevaluate products across powertrains, and consider additional partnerships. The cost program has a workforce component: Automotive News reports BMW plans to reduce about 8,000 positions through a voluntary severance program. BMW’s actions span its shift toward direct sales in Europe; more AI, automation, and faster decisions; expanded local-for-local sourcing; and greater engineering standardization and component commonality.
None of these moves is unusual on its own. Their collective purpose is to make BMW faster—to compress the time between market and macro signals and its response across retail, decision-making, sourcing, and engineering.
The CEO’s statement mentioned competitors expanding across Asia-Pacific, Latin America, and Europe without mentioning specific players or events and without indicating the financial impact.
The urgency behind BMW’s emphasis on speed becomes clearer when the expansion of Chinese competitors is viewed in sequence. DENZA launched globally in April and plans to reach at least 30 European countries and 150 stores by year-end, while stores in Brazil and Mexico were already taking orders. That would still leave it with nothing like BMW’s retail density. But matching BMW’s network is not necessary to put credible products in front of premium customers across major markets within nine months.
Zeekr’s experience in Malaysia shows what can follow. After launching there in December 2024, the brand exceeded 4,000 cumulative sales by May 2026 and, citing government registration data, says its 7X and 009 now lead the premium electric SUV and MPV categories.
The 7X makes concrete the price-and-technology pressure these brands are applying: its base version starts at RM182,800—28% below BMW's RM252,800 iX1L—and charges from 10% to 80% in 10.5 minutes, compared with 32 minutes for the BMW. The RM193,800 long-range 7X remains 23% cheaper while offering 615 km of WLTP range, versus 433 km for the iX1L.
None of this proves that BMW has already lost material volume outside China, or that these entrants have established durable market presence or profitability. It shows that a fast-moving competitor can establish distribution, reset price-and-technology expectations, and win local category relevance before an incumbent’s next conventional product cycle is complete. That is the response window BMW is trying to shorten.
The earnings read against BMW’s Big Questions:
- Sustainable Differentiation remains open. Demand in Europe and the U.S. supports the proposition that BMW’s products remain desirable. But the quarter still cannot tell us whether that desirability produces durable pricing power because too many geographic and cost effects obscure the underlying brand economics.
- Neue Klasse Bet strengthens on product evidence but remains unresolved economically. Orders, European BEV growth, the additional Debrecen shift, and technology diffusion into the 7 Series and X5 are encouraging. The report does not yet demonstrate target-level margins, reliable software at scale, or profitable portfolio-wide diffusion.
- China Competitiveness moves materially negative. BMW roughly held its relative position in a Chinese market that declined at a similar rate, but doing so within a contracting and repricing profit pool does not demonstrate improved competitiveness. China is now the clearest cause of the gap between BMW’s product and business stories.