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Rating action

Scope Ratings GmbH (Scope) has today downgraded its issuer rating on Mercedes-Benz Manufacturing Hungary Kft. (MBMH) to A from A+ and changed the Outlook to Stable from Negative. Scope has also downgraded the instrument rating on the bond (ISIN: HU0000359492) issued by MBMH and guaranteed by Mercedes-Benz Group AG (Mercedes-Benz) to A from A+.

The downgrade has been triggered by a deterioration in the guarantor’s business risk profile, amid uncertainty surrounding the pace and extent of margin recovery over the next few years.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

MBMH’s ratings are derived from the A rating of its guarantor, Mercedes-Benz. The rating reflects Scope’s view on Mercedes-Benz’ implicit guarantee to MBMH, based on the latter’s name identity, brand responsibility and importance as a manufacturer for Mercedes-Benz. The rating specifically reflects Mercedes-Benz’ unconditional and irrevocable guarantee to debtholders of MBMH’s outstanding HUF 40bn bond.

Business risk profile of guarantor Mercedes-Benz Group AG: BBB (revised from BBB+). The revised business risk profile reflects Scope’s lowered expectation for EBITDA* in 2025-2026 and the uncertainties around a speedy margin recovery. This assessment reflects a still strong competitive position underpinned by brand recognition and a premium portfolio diversified across all product categories and many geographies. However, the issuer is facing a challenging phase potentially into 2026, amplified by the cyclicality inherent in its industry as well as the structural transition in the automotive segment, including for premium products. The issuer’s major product launches for 2026-2027 along with its Next Level Performance (NLP) efficiency programme (since 2024) may lead to improved underlying performance from 2027.

Mercedes-Benz Cars' market share has been broadly declining since 2017, more recently due to increased competition from China and the demand shift towards electric cars. The issuer is looking to stem the downward trend and boost sales through the “biggest product launch program” in its history, planned for 2026-2027 and encompassing 40 new models, especially in the premium segment, of which over 15 will be electric and seven are targeted at the Chinese market. Market acceptance of recently launched products has been very positive so far.

Based on the challenging business environment expected into 2026, as indicated by 9M 2025 figures, Scope has revised down its expectation for Mercedes-Benz’ revenue and EBITDA for 2025-2026. Scope anticipates a 9% YoY decline in industrial revenues to around EUR 109bn in 2025, reflecting lower sales volumes and lower overall average selling price (ASP). The weaker sales volume is largely due to lower demand from China, the largest market for Mercedes-Benz Cars. Sales in the US market are also projected to decline, impacted by stock management to mitigate the impacts of tariffs imposed by the US government. At the same time, sales volumes in Europe are set to be relatively robust. The lower capacity utilisation, increased competition and tariffs are expected to result in a roughly 150 bps decline for EBIT. Scope forecasts EBITDA of EUR 9.1bn, well below EUR 15.9bn in 2024 and Scope’s previous assessment of EUR 11.4bn. The projection also includes dividend income of EUR 1.4bn, down from EUR 1.9bn in 2024 due to the expected lower contribution from BBAC.

After the transitional year of product launches in 2026, Scope sees good chances for a pronounced recovery in profitability in 2027, forecasting an EBITDA margin exceeding 10% and EBITDA growing to EUR 11.6bn (previous assumption: EUR 13.2bn). This would be supported by the optimisation of the product mix and the full impact of cost reductions under the NLP programme. However, the speed and extent of margin recovery are associated with risks relating to product launches and the overall market environment.

In 2026, the Chinese market should remain challenging. While the US market is showing signs of higher demand, tariffs still create uncertainty. Sales in Europe are expected to remain robust. Overall, Scope projects industrial revenue to remain relatively flat at about EUR 110bn.

The challenge for the issuer in terms of profitability is to strike a balance between capacity utilisation and pricing, in particular in China. Mercedes-Benz is continuing to prioritise margins and not sacrifice them for higher sales. The issuer may achieve better capacity utilisation in China by i) starting production of new products (e.g. CLA); ii) relocating GLE production from the US to China; and iii) adjusting capacities to the new market conditions.

Scope expects that the full impact from the restructuring initiated under the NLP programme will be seen in 2027. The negative impact of the US tariffs should be higher in 2026 than in 2025, projected at around 200 bps. Regarding R&D, Scope does not expect a material reduction given the anticipated increase for the Mercedes-Benz Vans division.

Financial risk profile of guarantor Mercedes-Benz Group AG: AA+ (unchanged). The very strong financial risk profile remains the key support for the issuer rating, mainly reflecting the conservative financial policy, as evidenced by the continued robust net cash position of the industrial business. This net cash position is resulting in strong leverage ratios, with debt/EBITDA, funds from operations/debt and free operating cash flow (FOCF)/debt all negative. The agency expects credit ratios to continue to reflect this net cash status in 2025-27.

Gross financial debt is very high, at EUR 102.3bn at end-September 2025, which is in line with automotive peers. Scope’s analysis of Mercedes-Benz’ financial risk profile is based on the industrial segment. The industrial business' share of financial debt has been negative since 2022, meaning it is a net lender to the financial services business. Adjusted for pensions and trapped cash, Scope projects a net cash position of around EUR 34.5bn at year-end 2025. Scope forecasts a net cash position for the industrial business into 2027.

Driven by lower EBITDA, Scope projects FOCF to decline to EUR 5.6bn in 2025 from EUR 8.4bn in 2024. Net working capital is set to support FOCF as indicated by 9M 2025 figures. In 2026, Scope expects cash outflow for restructuring and provisions of EUR 1.5bn-2.0bn, which will affect FOCF. In addition to the payout under the NLP, there may also be some in connection with the FCA review, for which EUR 422m was provided for 2025. In line with company guidance, Scope projects capex in the new flexible drive architecture and new products to peak in 2025 then decline. Overall, Scope expects FOCF of around EUR 3.2bn in 2026 and EUR 6.2bn in 2027.

Scope assesses the risk profile of the captive finance activities (Mercedes-Benz Mobility) as adequate, with no incremental risk to Mercedes-Benz’ creditworthiness.

Liquidity of guarantor Mercedes-Benz Group AG: adequate (unchanged). Liquidity is adequate, supported by the absence of gross financial debt in the industrial business since 2022, which Scope expects to persist through 2025-2027. In addition, Scope notes the sizeable unrestricted cash on the balance sheet and the available undrawn EUR 11bn revolving credit facility, renewed in June 2024 and available until at least 2029 with two one-year extensions. Furthermore, Mercedes-Benz could raise more cash by reducing its 30% stake in Daimler Truck or securitising receivables from the financial services business (asset-based securitisation).

The group has no financial covenants, asset pledges or credit support agreements, in line with its funding strategy.

Supplementary rating drivers: credit-neutral (unchanged). The rating does not incorporate any adjustments related to financial policy, peer group considerations, parent support or governance and structure.

Financial policy remains credit-neutral. Mercedes-Benz is committed to maintaining a strong investment grade rating of A. The recent more shareholder-friendly capital allocation policy, with share buybacks a permanent tool for remuneration alongside dividends, is mitigated by the fact that the dividends and share buybacks are linked to industrial FOCF, thereby avoiding debt financing. M&A transactions (e.g. the sale of the Daimler Truck stake) are also part of the share buyback framework.

Scope does not expect Mercedes-Benz to undertake any significant acquisitions in the near future. The group is more likely to make bolt-on acquisitions or strike alliances or partnerships to support its new strategic ambitions.

Outlook and rating sensitivities: same as those of guarantor Mercedes-Benz Group AG

The Stable Outlook reflects our view that Mercedes-Benz' major product launch plan has good potential to stem the downward trend in the issuer’s market share from 2027. The Outlook also reflects some uncertainty about the ability and pace of a margin recovery to above 10% over the medium term, supported by the optimisation of the product mix and ongoing cost reductions. It also incorporates our view that Mercedes-Benz will continue to have a net cash position.

The upside scenarios for the ratings and Outlook are (collectively):

1. Recovery of EBITDA margin to significantly above 10%
    
2. A stabilisation of the downward trend in market share e.g. through new product launches

The downside scenarios for the ratings and Outlook are (individually):

1. EBITDA margin of around 7% on a sustained basis
    
2. Sustained erosion of market position leading to a loss in market share
    
3. Deterioration of the company’s cash flow conversion

Debt rating

Scope has downgraded the instrument rating on the outstanding HUF 40bn bond (ISIN: HU0000359492) to A from A+, the same level as the issuer rating. This senior unsecured bond was issued by MBMH in March 2020, with a seven-year tenor, under the Bond Funding for Growth Scheme of the Hungarian National Bank. This bond benefits from an unconditional and irrevocable guarantee provided by MBMH’s ultimate parent company, Mercedes-Benz.

MBMH is a wholly owned subsidiary of Mercedes-Benz and one of the largest industrial companies in Hungary. At the Kecskemet plant, MBMH manufactures compact cars (A-Class including hybrid versions, CLA Coupé and CLA Shooting Brake), the all-electric EQB and the Mercedes-AMG Performance models as part of the group's global production network. In 2024, MBMH produced over 146,000 vehicles (CLA Coupé, CLA Shooting Brake, A-Class and their hybrid versions, Mercedes-AMG Performance compact models and the all-electric EQB) at its Kecskemet plant and generated revenue of about EUR 4.2bn and an EBITDA of EUR 200m.

Environmental, social and governance (ESG) factors

Overall, ESG factors have no immediate impact on this credit rating action.

However, the issuer does face some regulatory risks. Like all car manufacturers, the group faces rising pressure from environmental regulations and carbon neutrality goals. These challenges require substantial investment in new technologies, innovative drivetrains, battery capacities and software capabilities. It also entails a transformation in manufacturing and workforce competencies (notably training, reskilling and upskilling existing personnel and hiring specialists). The group's e-mobility strategy plays a key role in meeting regulatory requirements, with at least 15 electric vehicles to be released in the next three years.

The issuer will also benefit from softer CO2 emissions requirements in the EU, with makers of cars and vans to get three years, rather than one, to comply with targets. In addition, automakers that anticipate they will still fail to meet the three-year target can form so-called pools with better-performing competitors in order to avoid EU fines.

Governance is credit-neutral, with no specific issues identified.

All rating actions and rated entities

Mercedes-Benz Manufacturing Hungary Kft.

Issuer rating: A/Stable, downgrade

Senior unsecured guaranteed bond rating (ISIN: HU0000359492): A, downgrade

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025; Automotive and Commercial Vehicle Manufacturers Rating Methodology, 19 December 2024), are available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the Rated Entity or Related Third Party participation   YES
With access to internal documents                                       NO
With access to management                                                YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Gennadij Kremer, Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 3 March 2020. The Credit Ratings/Outlook were last updated on 23 December 2024.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.