Mercedes-Benz has vowed to remain in China despite falling sales and declining profits. The German carmaker plans to review every part of its business in the country as competition intensifies and pressure on profitability grows.

Chief Executive Ola Källenius said more than 100 companies are competing in China’s car market. He warned that aggressive competition is pushing prices and profits down, with the effects spreading to other international markets.

Mercedes-Benz reported a 21% decline in sales of its most expensive models compared with the same period last year. Revenue in China fell 34%, while European revenue dropped 0.8%. North America recorded a 2.6% increase in sales.

The company plans to source all components locally for vehicles sold in China to reduce costs. It also intends to strengthen its semi-autonomous driving technology to compete with local manufacturers.

Rather than pursuing higher sales volumes, Mercedes-Benz will focus on premium vehicles. Källenius said the company could not afford to ignore China, which remains the world’s largest car market.

The company has also lowered its 2026 profitability target. Mercedes-Benz now expects an operating profit margin of 2% to 3%, down from its previous forecast of 3% to 5%.

Its passenger car division recorded a 51% year-on-year drop in adjusted earnings before interest and tax, which fell to €560 million in the third quarter. Industrial free cash flow also declined by 87% to €172 million.

Other European carmakers are facing similar challenges. Volkswagen and BMW have also lowered their financial forecasts, citing weaker sales in China.

Meanwhile, Stellantis maintained its annual outlook as it continued cost-cutting measures. Its third-quarter operating loss narrowed to €331 million, compared with €5.7 billion a year earlier. Revenue remained broadly stable at €37 billion.

Aston Martin also kept its guidance despite uncertainty surrounding US tariffs, conflict in the Middle East and changes to China’s ultra-luxury car taxes. However, its net debt increased to £1.6 billion by the end of September.