r/valueinvesting
Something different
Evaluates Mercedes-Benz as a deep value play, weighing China EV risks against strong cash flows, high shareholder yield, and low multiples.
- Strong global luxury brand with resilient demand from wealthy customers despite macro headwinds.
- Massive cash flow generation and strong balance sheet supporting aggressive capital returns (9-11% shareholder yield).
- Extremely low valuation (7-8x forward P/E, 7-8% dividend yield) pricing in a permanent structural decline.
- Intense competition from Chinese EV makers and a weaker luxury market in China are severely damaging profitability.
- Automotive EBIT margins have plummeted to around 4%, raising fears of a permanent loss of pricing power.
- Bear case scenario suggests fair value could drop to €30-40 if China never recovers and margins stay depressed.
The software posts have gotten a bit repetitive. I appreciate the opinions and am invested in Adobe and SAP but I thought I'd take a look elsewhere in the Market for possible value..
MERCEDES BENZ GROUP
My Mercedes investment thesis comes down to a simple question: is the market pricing a temporary earnings slump or a permanent decline?
At around €44 per share, Mercedes is trading at a valuation that assumes a lot has gone wrong already. The key risk is China. Mercedes has historically earned very high margins selling premium vehicles to affluent Chinese buyers, but competition from Chinese EV makers and a weaker luxury market have damaged profitability. In Q1 2026, automotive EBIT margin fell to roughly 4%, far below historical levels. The market is worried that Mercedes may never regain its former profitability.
My value case is that even after these problems, Mercedes remains one of the strongest premium automotive brands globally. Wealthy customers still buy Mercedes, especially for status, comfort, and luxury. The company continues to generate substantial cash flow, has a strong balance sheet with significant industrial net liquidity, and is aggressively returning capital through dividends and buybacks. The current buyback programme of up to €2 billion and a combined shareholder yield (dividends plus buybacks) is around 9-11%.
At €44, the stock trades around 7-8x forward earnings and offers a dividend yield around 7-8%. That is a valuation normally associated with structurally declining businesses rather than a global luxury brand.
My bear case assumes China never recovers, margins stay around 3-5%, and earnings settle around €4-5 per share. Under that scenario, fair value could be only €30-40. We're almost there so I'm strongly considering to start accumulating. (I haven't pulled the trigger yet)
My base case assumes margins recover somewhat from current depressed levels, Europe and North America remain solid, and China stabilises rather than improves dramatically. Under those assumptions, fair value is roughly €55-65 per share.
My bull case assumes Mercedes eventually returns to something closer to historical profitability, buybacks continue reducing the share count, and investors stop treating it like a declining automaker. In that scenario, fair value could be €70-90+.
Compared with BMW and Volkswagen, I prefer Mercedes because the valuation discount is larger. BMW is arguably executing slightly better operationally, but Mercedes offers more upside relative to the price being paid.
If I had to summarize the investment in one sentence: Mercedes at €44 looks like a high-quality luxury brand being priced as if its China problems are permanent and irreversible, which creates value if the reality turns out merely bad rather than catastrophic.
Have you been inside a new Mercedes? It has been enshittified beyond belief
I haven’t personally driven the latest Mercedes models, but from aggregated customer and reviewer feedback, there’s a mixed perception: interiors in some newer models feel more cost-optimised and screen-heavy compared to earlier generations, which has led to criticism about a loss of traditional “luxury feel.” However, this seems to be an industry-wide shift rather than something unique to Mercedes, as most premium OEMs are moving toward software-defined cabins (this is something that is specifically where they could win more market share in Asia) and platform cost efficiency. From an investment perspective, the key question is less about subjective interior feel and more about whether Mercedes can maintain premium pricing, brand positioning, and cash flow generation through the transition.
Curious with the risks or regulation (tariffs, price controls) and more China pushing more into China. Why not look at Ferrari where people pay regardless as they will never make enough to meet demand or lower prices
Ferrari is a higher-quality business in the sense of pricing power and scarcity, but that quality is already priced in. I would say its almost priced for perfection right now. Mercedes is a cyclical industrial luxury brand being valued as if structural decline is certain. The debate isn’t which is “better”, but whether Mercedes’ current pessimism is excessive relative to its cash flow and brand durability.
Thank you!
any investment into european car companies is an investment in them being able to strongarm EU officials into tariffs.
these companies are essentially just dead weight on society, paid for by price controls on foreign goods.
cancerous, and i hope every investor into german car co's goes bankrupt and will never recover his portfolio.
I think you’re mixing up industrial policy with company-level investing. Whether EU tariffs are good or bad for society is a separate debate — but it doesn’t determine whether a stock is under- or overvalued.
Mercedes doesn’t “control” EU policy. It competes globally against BMW, Tesla, BYD, Toyota, etc., and earns returns based on pricing power, cost structure, and demand — not political leverage.
From a valuation perspective, the question is simpler: is the market correctly pricing in permanently lower margins (especially in China EV competition), or is it over-discounting cyclical weakness?
At ~7–8x earnings with strong cash generation and high shareholder returns, the debate is about duration and margin recovery — not whether the company is “good for society”.