Mercedes-Benz Faces Tariff Headwinds: Is This a Buying Opportunity?

The luxury auto market is in turmoil, and Mercedes-Benz (MBG:GR) is at the center of it. RBC Capital Markets just slashed its price target twice—first to €73, then €71—citing escalating tariff risks and a 41% plunge in Q1 earnings. But here’s the twist: the analysts still rate the stock a “Buy.” So is this a time to panic—or pounce? Let’s dive in.

The Tariff Tsunami

RBC’s alarm bells are ringing over U.S. President Trump’s auto import tariffs, which now hit 25% on imported vehicles. For Mercedes, this means a potential 3% margin hit for cars and 1% for vans if tariffs persist all year. The automaker’s Tuscaloosa plant is now a lifeline: expanding U.S. production to dodge these levies could be a game-changer. But here’s the catch—those investments won’t save Q2 earnings.

The numbers? In Q1, revenue tumbled 7.4% to €33.2 billion, while EBIT cratered 40.7% to €2.3 billion. Even free cash flow, a bright spot, only grew 5.6% to €2.36 billion. But the stock? It’s down 26.6% year-to-date, trading at €54.19—far below RBC’s latest €71 target.

Why RBC Still Says “Buy”
Despite the gloom, RBC’s analysts see a silver lining: capital returns. Mercedes plans to return 13-14% of its €52 billion market cap to shareholders via buybacks and dividends by 2025. That’s a massive tailwind for investors. Plus, the stock is still 24% below RBC’s worst-case scenario of €62—a level that would still represent a hefty gain from current prices.

But here’s the kicker: Mercedes isn’t just sitting on its laurels. It’s launching the Vision V, an all-electric luxury limo in China, its biggest market. Sales there fell 10% in Q1, but this EV play could turn the tide in the critical premium EV segment. Meanwhile, U.S. sales rose 1%, showing resilience in a key tariff-protected market.

The Bigger Picture
The auto industry is in freefall. Peers like Volvo and Porsche have also withdrawn guidance, with Volvo slashing costs by $1.87 billion. But Mercedes has a unique edge: its global brand power and cash flow stability. Even with tariffs, free cash flow remains positive—a rare feat in this sector.

Action Alert: Buy the Dip?
The risks are clear: tariffs could get worse, China’s market remains shaky, and 2025 guidance is gone. But the reward? A stock trading at just 1.5x RBC’s revised valuation multiple, with a “Buy” rating intact. At €54, this is a “value trap” only if tariffs become permanent—and even then, Mercedes’ U.S. pivot and EV bets are defensive moves.

Final Verdict
Mercedes-Benz isn’t dead—it’s adapting. With a 24% upside to RBC’s worst-case target, shareholder-friendly policies, and strategic moves to sidestep tariffs, this could be a rare “Buy” in a sinking sector. But hold your breath until Q2: if margins stabilize and China rebounds, this stock could roar back. For now?

Investment Grade: B+ (Hold with Caution, but Consider Accumulating)
Final stats to ponder:
- Mercedes’ Q1 free cash flow up 5.6% despite EBIT collapse.
- 13-14% capital returns by 2025—no small potatoes at €52 billion.
- Stock price at €54 vs. RBC’s €71 target: 29% upside potential.

The road ahead is bumpy, but this luxury icon isn’t out of gas yet.