Mercedes Accelerates Electric Shift With $47 Billion Push

Source: By Christoph Rauwald, Bloomberg • Posted: Thursday, July 22, 2021

Daimler AG’s Mercedes-Benz vowed to spend more than 40 billion euros ($47 billion) this decade to electrify its lineup and defend its position as the world’s leading luxury-car maker through a historic industry transformation.

Mercedes plans to launch three new all-electric vehicle platforms in 2025 and set up eight battery factories with partners, the company said in a strategy update Thursday. Mercedes is betting the luxury segment will shift faster toward battery cars than the mass market because of customers’ greater purchasing power.

“The tipping point is getting closer and we will be ready as markets switch to electric-only by the end of this decade,” Chief Executive Officer Ola Kallenius said in a statement. “This step marks a profound reallocation of capital.”

After years of criticism for being late to adopt purely battery-powered cars, the storied German manufacturer stepped up its game with the launch of the EQS — the electric version of its flagship S-Class — earlier this year. The sedan drew praise from analysts and car reviewers for blending upscale appeal and competitive battery range that challenges models from Tesla Inc.

Read more: Where We Are on the Road to Electric Vehicles: QuickTake

Mercedes is sticking to its profitability targets amid the EV shift. The company didn’t give a concrete date for when it will phase out combustion engines, saying the pace of the shift toward EVs will vary widely across regions. It pledged to be ready to go all-electric by the end of the decade where conditions allow.

Additional plans include:

  • Introducing three electric-only EV platforms in 2025: MB.EA for mid-size and larger passenger cars, AMG.EA for performance cars and VAN.EA for electric vans and light commercial vehicles.
  • Forming additional partnerships in Asia and Europe to source batteries. The company needs more than 200 gigawatt-hours of cell capacity by 2030.
  • Bolstering EV-charging offerings with partners including Shell.

Mercedes will make eight fully electric cars on three continents next year. It’s flanking the EQS with models including the compact EQA and plans to unveil the electric version of its bestselling E-Class sedan at the Munich auto show in September.

The Mercedes budget is one of the largest that major automakers have announced recently for electrification:

Volkswagen EU73 billion through 2025 (includes digital technology)
Mercedes EU40 billion through 2030
Stellantis EU30 billion through 2025 (includes software)
GM $35 billion through 2025 (includes autonomous vehicles)
Ford $30 billion by 2025

Mercedes said it expects plug-in hybrid and fully electric cars to account for more than half of global car sales by 2025, five years sooner than the company forecast months ago. By 2039, it aims to turn its new-car fleet carbon-neutral.

On Wednesday, Daimler reiterated that Mercedes is forecast to be more profitable in 2021 than it’s been in years, thanks to strong demand and a tilt toward high-margin models that have been prioritized during the global semiconductor shortage. It has projected an annual return on sales for the cars and vans division between 10% and 12%, despite the heavy investment in EVs and other technology.

2021 Mercedes EQA

Daimler cautioned this week that headwinds from raw material prices may intensify in the second half, and it might not be able to compensate for this with the same level of efficiency gains mustered in the first six months.

Related: Daimler Slashes Car-Sales Outlook as Chips Wipe Out Growth

The EV strategy update is one of the last showcases for Mercedes leading up toDaimler’s planned spinoff of its truck division, which it expects to complete by year-end. The company is splitting the businesses in part because it believes they will pursue diverging paths on electrification, with passenger cars shifting toward battery power and hydrogen fuel cells likely playing a bigger role in commercial vehicles.

“We would be buyers of Daimler ahead of its truck spin at year-end,” Tom Narayan, an analyst at RBC Capital Markets, said in a report Thursday. “According to our math, you would basically be getting the cars business for free.”

(Updates with table on other automakers’ electrification budgets.)