Mercedes-Benz Group AG cut its financial forecast for the year due to a rapid deterioration of its business in China, marking the latest blow to Germany’s struggling industrial sector.

Adjusted returns in the main cars unit are now expected in a range of between 7.5% and 8.5%, compared with a prior forecast of as much as 11%, the manufacturer said late on Thursday. China, the company’s biggest market, has cooled further, hurting sales of Mercedes’ most expensive models like the S-Class and Maybach sedans.

The shares fell as much as 7.7% on Friday, the steepest intraday drop since May 2023. The stock is down around 13% this year.

Mercedes will do “whatever we can” to boost performance, chief executive officer Ola Källenius said during an analyst call, adding that this includes a sales offensive in China with new products. “We will actively sail the wind, not just watch the wind.”

The profit warning is the latest setback for Germany’s most important industry, which is struggling with a bumpy transition to electric cars and waning profits from China. Volkswagen AG, the continent’s biggest automaker, this month scrapped a decades-old labour pact. It’s poised to close factories in Germany for the first time due to lagging demand. BMW AG last week cut its full-year earnings guidance, held back by the downturn in China and sluggish electric vehicle (EV) sales.

Earnings before interest and taxes are now expected to be “significantly below” the prior year level, Mercedes said. That’s a major setback to the carmaker’s strategy of selling more of its most luxurious vehicles to boost profitability. China’s macroeconomic environment has deteriorated further, driven by the persistent downturn in the real estate sector, the company said.

The company’s latest EVs have met with a tepid response from consumers in Asia’s powerhouse economy and elsewhere. Younger drivers in China are increasingly turning to homegrown brands that are perceived to have more advanced in-car digital and entertainment technology.

While business in China is sliding, sales in Europe are also under pressure. Mercedes deliveries across the region slumped 13% in August and are down 3% during the first eight months. Cratering EV sales are undermining carmaker efforts to meet European Union emissions rules that will tighten next year, exposing the industry to billions of euros in fines.

Economy Minister Robert Habeck is holding an industry summit in Berlin on Monday to discuss ways out of the current crisis.

  - Bloomberg