Reinventing the Wheel: Daimler Intentionally Becoming a Smaller Company to Facilitate Tech

Daimler Chairman Ola Källenius went against the grain on Thursday by admitting the company he’s been tasked with overseeing will become significantly smaller in five years. That’s normally not the kind of thing you want to telegraph to shareholders via the media but he’s convinced this is the best course of action for the business.

“The next five years we will become a smaller company,” Källenius told Reuters. “We will have a fundamental change in the industrial footprint on the powertrain side.”

The future of Daimler apparently involves a half-decade metamorphosis into a services-focused software company that just so happens to build vehicles. But the vehicles won’t be those internal-combustion jobs that you grew up around. Instead, they’ll be hyper-efficient electrics from Mercedes-Benz as it re-imagines luxury within the strict confines of environmental sustainability. As a byproduct, Daimler will need fewer employees to help manufacture automobiles.

From Reuters:

Jobs will disappear because it takes less time to build an electric car than a conventional gasoline or diesel version.

That’s because an electric car’s battery and motor have only 200 components, compared with at least 1,400 parts found in a combustion engine and transmission, according to analysts at ING.

The shift away from fossil fuel requires the automaker to double down on efficiency so it can free up resources to build electric and self-driving cars, Kallenius [sic] said.

“We are hiring a lot of new software engineers, experts in battery chemistry, electrification,” he explained.

Making Daimler smaller also fits with a new era where luxury no longer defines itself through opulence and excess but also through sustainability and efficiency.

Traditional luxury is becoming passé now that Daimler knows splendor is incomparable with green movement. But its a concerning decision when we’ve yet to see any automaker other than Tesla showcase that EVs can reliably turn a profit. Even there, the American manufacturer gets a sizable financial boost from selling carbon credits to established firms with deep pockets and an inability to adhere with regulatory mandates.

Assuming governments around the world stay the course and continue doubling down on emissions fines and incentivizing EV purchases, Daimler might be on the right path. However it’s just one company of sea of manufacturers who are all attempting to do the same thing at a time when electric development programs are extremely costly and the vehicles themselves are failing to reach parity with their gas-driven ancestors at the necessary pace. What happens five years from now when there’s more direct competition in the electrified segment and the market is still dragging its feet with low adoption rates?

Källenius said this may not matter since Daimler will have an entirely different business model. Mercedes-Benz has been toying with the notion of selling fully equipped vehicles that have to have features unlocked via in-app subscription purchases (something we’re skeptical of benefiting consumers). But it thinks it can make money by implementing these changes and other digital services (customer data acquisition, new infotainment options, assisted driving packages, partnered advertising, etc.) offering recurring sources of revenue when it releases its new vehicle operating system in 2024.

“Think about it like an iPhone,” Källenius explained, noting that even more services could be added via over-the-air software updates and vehicle connectivity.

“You can add to it,” he said. “That’s the beauty of it.”

Mercedes-Benz sees China as the next growth market and will be directing most of its efforts to sell vehicles there. This may include allocating future production efforts inside the country and catering vehicles to the market’s taste.

“If we have individual models which reach a critical mass in China … that’s possible,” Källenius said, noting that production plans had not yet been finalized. “It depends on how the market develops.”

[Image: Franz12/Shutterstock]