Mercedes-Benz will step up cost cuts after earnings halved in the third quarter hit by tepid demand and fierce competition in China, it said on Friday.

The carmaker cut its full-year profit margin target twice during the third quarter, joining a growing number of European rivals blaming a weakening Chinese car market for falling profits and margins.

Union Investment, which according to LSEG is among the 30 top investors in Mercedes, called on the management to amend its strategy as it sees no market for 2 million luxury cars any longer.

The company's stock has lost around 8% year to date, underperforming Germany's benchmark DAX index but still faring better than Volkswagen, BMW, and Porsche.

Mercedes' car division's adjusted return on sales fell to 4.7% in the third quarter from 12.4% last year, its worst profitability since the pandemic, while earnings in the unit more than halved, worse than expected by analysts.

"The Q3 results do not meet our ambitions," CFO Harald Wilhelm said. He declined to provide more details about the cost cuts, but warned that "it will be tighter and tougher for sure".

Europe's biggest automaker, Volkswagen is considering plant closures in Germany for the first time.

In 2020, Mercedes launched a plan to reduce costs by 20% between 2019 and 2025, 15-16% of which was already achieved, according to the CFO.

The July-September earnings were hit as Chinese consumers continued to cut back on luxury goods in a weakening economy, which has in particular weighed on Mercedes's lucrative high-end S-Class model sales in the country.