With Mercedes-Benz Going Electrified, How Does the Company Avoid Tanking?

Steph Willems
by Steph Willems
with mercedes benz going electrified how does the company avoid tanking

Everyone’s doing it. It’s as popular as the fidget spinner and Pokémon Go crazes all those [s]years[/s] months ago. In a rush to signal their environmental bonafides and display their dedication to the Next Big Thing, luxury automakers are tripping over themselves in an effort to promise an all-electrified model lineup as soon as technology and finances allow.

This time, it’s Mercedes-Benz. The world’s oldest car brand doesn’t want its rivals cashing in once governments around the globe start turning off the fossil fuel taps. So, earlier this week, Daimler CEO Dieter Zetsche stepped up and made a promise we’ve heard ad nauseum as of late: every model in the brand’s lineup will soon sport some form of electric propulsion, be it a hybrid setup or full-on battery electric powertrain.

For Mercedes-Benz, this means 50 hybrid or EV models, including at its irrelevant-to-Americans Smart brand. The move isn’t without a steep cost, however — Daimler is bracing for a slashing of vehicle profit margins. In some cases, the green collected from green cars could be half that of a gasoline Benz. What to do?

“In the beginning of the cycle we believe that we will have to face a significantly lower margin,” said Frank Lindenberg, vice president of finance and controlling at Mercedes-Benz Cars, in an investor meeting this week. He added, “We are still aiming for a 10 percent return on sales, but have to be prepared for a kind of transition, with a corridor of 8 to 10 percent.”

First off, the company must find savings to offset the hit. The automaker’s Fit for Leadership 4.0 streamlining plan targets $4.8 billion in savings by 2025, which Mercedes-Benz’s parent feels should compensate for the lost profitability. It should also make up for increased investment in production and R& D.

Expenditures on plant investment and R&D at Daimler’s car division (which earns the bulk of the company’s revenue) rose from $4.28 billion and $5.59 billion, respectively, in 2015 to $4.97 billion and $6.78 billion last year. The forecast for 2017? $6.18 billion and $7.25 billion. Expenses at Daimler’s other commercial divisions are predicted to stay flat, or just barely budge. Moving past this year, the company plans to find nearly $1.2 billion in savings in R&D, a similar amount in fixed costs, and the rest in product costs.

Part of the automaker’s plan, Reuters reports, has to do with production. With the brand’s first fully electric vehicle, the EQC utility vehicle (based on last year’s Concept EQ and scheduled to start production in 2019), Mercedes-Benz can’t simply dive into EVs on a hope and a prayer. In an investor call this week, the company used the electric SUV as an example.

Sharing a platform with the dino juice-powered GLC, the EQC will also share its assembly plant. Daimler implies production will start out slow, ramping up if and when consumers demand more. If the electric SUV turns out to be an instant hit, well, the company’s profit hit arrives sooner than planned.

By 2025, EV profitability should be on par with conventional cars, Daimler claims.

Going by last year’s sales figures, Mercedes-Benz’s largest growth markets are Europe and China, both of which are keen on legislating away gasoline and diesel. It makes sense for Daimler to pursue a cautious electrification plan. Still, European suppliers who have long depended on Daimler for their livelihoods aren’t too happy about any of this.

Surely there’s other ways of being nice to the planet (while keeping jobs away from China), they’ve implored.

“We need to provide a sensible transition period that doesn’t give unwanted gifts to our Chinese friends,” said Roberto Vavassori, president of the European Association of Automotive Suppliers, after Daimler’s announcement. The organization doesn’t want to see massive quantities of batteries sourced predominantly from Asian nations. Vavassori estimates automakers would send $5,000 to $8,000 to China for every electric car produced in Europe — revenue diverted from European businesses.

Suppliers make up 5 million of the roughly 12.6 million auto industry-related jobs in the European Union.

[Image: Daimler AG]

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  • Brandloyalty Brandloyalty on Sep 14, 2017

    http://www.thinkprogress.org/holcomb-coal-plant-is-a-long-shot-9a71b500b37e "the economic case for building a new coal-fired power plant in the U.S. has essentially evaporated — even without accounting for the costs of carbon pollution and the health impacts that stem from burning coal." "utilities are increasingly choosing to invest in renewable energy instead of coal simply because it is cheaper." "A March report from Moody’s Investors Service found that in the 15 states with the best wind resources, new wind generation now costs significantly less than existing coal-fired power plants."

    • 28-Cars-Later 28-Cars-Later on Sep 14, 2017

      Sinkprogress? Why not throw some Breitbart in there as well if we're going to quote fake news?

  • Autohausak Autohausak on Feb 17, 2020

    An electric vehicle, also called an EV, uses one or more electric motors or traction motors for creating momentum in a car or may be self-contained with a battery, solar panels or an electric generator to convert fuel to electricity and has been one of the most trending innovations at the starting of this 21st century. With Mercedes-Benz Electrical Intelligence(EQ), the electric future is here. Through expert engineering and cutting-edge technology, the next wave of Mercedes-Benz vehicles will usher in a new era of luxury driving and we must cope with it. The new EQ car comes with some truly great features and options but has one downside from the customer's side is the battery installed in the EQC is not doing well. For further studies check this link out by truth about cars itself: https://www.thetruthaboutcars.com/2020/01/report-battery-shortage-has-mercedes-benzs-newest-ev-struggling-to-clear-the-tower/

  • Jeff S I rented a 2012 Chrysler 200 with the 4 cylinder from Enterprise for business travel and it was not a bad car but I would not buy one. I would have picked a Honda Accord, Toyota Camry, or a Ford Fusion over a Chrysler 200. I have known people that bought Chrysler 200s that had nothing but problems with them. I appreciate these old reviews and miss the old TTAC before it became what it is now with many articles that are slanted toward politics. Don't have to agree with everything but it is good to read an honest review of a car.
  • Jeff S The Cybertruck was first unveiled and announced on Nov. 21, 2019. For over 3 years Tesla has been saying that this truck was going to be released soon. The mystique and surprise is no longer there. I think the Cybertruck is hideous but then I am not the target for this. Since its initial unveiling there has been the introduction of the Lightning, Hummer, and the Rivian truck. The anticipation of this truck and the mystique has faded. There will be a few that will buy this because they are hard core Tesla fans and some because it is different but Tesla should have been the first to market an EV pickup. GM is planning a compact EV pickup under the GMC brand starting at 25 MSRP. This should have been Tesla and Tesla could have downsized the Cybertruck to either a midsize or compact truck and been first. Tesla should have been first at the very least to release a smaller EV truck.
  • Bloke Wow, this should make a big difference, to those catalytic converter thieves who don't have tools like 'angle grinders' with them.
  • Carlson Fan The way the truck drops in the rear and the bed/tailgate become a ramp is genius! I'd buy it just for that alone!!! It would be awesome for loading snowmobiles and garden tractors in the back. However, my trucks need to be able to regularly tow heavy loads long distance, summer & winter. Sorry folks, current battery tech. isn't even close to what it needs to be for me to think even one second that a battery truck could replace my current ICE powered truck. An EV for a DD makes sense , but for truck you need a MUCH better battery.
  • Inside Looking Out For midsize sedan it is too small. It basically is a compact car.