Mercedes-Benz on Tuesday became the third major German automaker to lower its annual profit outlook amid challenging conditions in China, highlighting the severity of the crisis gripping the industry.

Citing difficulties in China – the world's largest car market – as well as higher material costs, core profit for 2026 is now expected to be on a par with the prior year's 5.8 billion euros ($6.5 billion), the company said.

It had previously foreseen an increase of at least 15%.

Profit margins at the core car business are now indicated at between 2% and 3% for the year, Mercedes-Benz said, down from the 3% to 5% previously.

Mercedes-Benz shares fell 4.2% after the announcement of the cut. Volkswagen and BMW were both down a little over 2%.

BMW and Volkswagen have both already cut their guidance for the year as sluggish demand, combined with cut-throat competition from Chinese local rivals such as BYD and Xiaomi, has eaten into profits.

Mercedes-Benz's vehicle deliveries in China – last year already at their lowest level since 2016 – fell a further 29% in the nine months to end-September.

Being partially muscled out of China has led to painful adjustments for Germany's car industry, one of the country's largest employers.

Mercedes-Benz CEO Ola Kaellenius has urged German workers to work extra hours without pay at the same time as expanding the company's manufacturing footprint in Hungary, where he says costs are about 70% lower than in Germany.

Volkswagen plans to cut 120,000 jobs globally by the end of the decade in what is the largest restructuring in automotive history, eclipsing the 50,000 jobs lost after the bankruptcy of General Motors in 2009.

Core profit for the third quarter came in at 1.77 billion euros, Mercedes-Benz said in preliminary results, and the profit margin at the cars business was 2.5%.

The company reports full third-quarter results on Wednesday.