What would it take for Mercedes Benz stock to re-rate higher? Citi weighs in

Mercedes-Benz Group's stock has plummeted to pandemic-era lows, leaving its market value nearly on par with its cash reserves and stake in Daimler Truck Holding AG. Citi analysts believe this depressed price could present a deep-value opportunity if the luxury automaker's operational fundamentals improve. Despite its Neutral rating, Citi advocates for a Buy rating on stock, contingent on short-term pressures subsiding.

The company boasts structural buffers, such as non-passenger car businesses, significant cost-cutting efforts, and upcoming investments in battery electric vehicles (BEVs), which lend resilience to its cash generation during trough periods. Citi identifies four key concerns impacting Mercedes-Benz's stock: China's market share losses, competition from Chinese EVs, U.S. tariff impacts on margins, and the transition to electric vehicles.

The firm projects a reduction of €4 billion in fixed and variable costs, alongside a major global product wave that should bolster volumes and product mix for fiscal years 2027 and 2028. Citi estimates Mercedes-Benz will generate around €4 billion in free cash flow under trough fiscal 2026 margin assumptions, leading to roughly €6 billion in total shareholder returns, including share buybacks.

The company maintains a Neutral rating, suggesting momentum investors will likely await clearer margin signals amid ongoing second-half risks, such as rising raw material costs and international competitive pressures.