Mercedes-Benz reported a sharp drop in operating profit at the start of 2026, a year set to bring higher raw material costs and further tariff pressures, weighing on the German carmaker as it overhauls its model lineup to boost sales. The Middle East conflict has driven up global industry costs, compounding pressure on European automakers already hit by high U.S. import tariffs. Mercedes, like German peers Volkswagen and BMW, is also battling falling sales in China, as domestic brands like BYD and Nio encroach on the premium segment after conquering the mass market with cheap, tech-laden EVs. Mercedes reported on Wednesday earnings before interest and tax (EBIT) of 1.9 billion euros ($2.22 billion) in the first quarter, down 17% on the year.