It’s a tough time to be running a car company, the industry facing semiconductor shortages, a war in Ukraine driving up fuel prices and threatening to lead to additional shortages of key raw materials. Add to that the need to steer in a new direction as the industry ramps up its migration from internal combustion engines to battery-electric vehicles.
Mercedes-Benz, in particular is dealing with “more than one curveball,” said Chairman Ola Källenius, during a media roundtable on Tuesday. But the automaker’s recent financial results suggest it is navigating its way through the various crises, he stressed.
Källenius spoke to reporters in Tuscaloosa, Alabama at the SUV manufacturing complex Mercedes first opened in 1997. It has invested $7 billion in the operation since then, including $1 billion spent to add a new battery pack production facility and to modify the assembly plant to handle battery-electric vehicles. It will begin producing the new EQS SUV by mid-year, with the smaller EQE SUV to follow.
Short time, but many changes
In the three years since the Swedish-born executive took over as the automaker’s first non-German chairman and CEO, Källenius has shaken things up in a variety of ways. There’s the name change, dropping Daimler AG in favor of what most of the world would recognize it as, Mercedes-Benz. As 2021 came to an end, the Daimler Truck unit was split off.
And in a marked departure from the strategy of Dieter Zetsche, his immediate successor, Källenius has reversed the strategy of steadily adding more models to the line-up — resulting in an alphabet soup of products like the CLA, MLE and EQS.
Even more significant, however, was the decision to target sales leadership in the global luxury vehicle market.
“We’re not chasing volume. We’re chasing value,” Kallenius explained. “We’re not incentivizing ourselves into higher market share.”
That strategy appears to have paid off, at least based on the automaker’s latest earnings which showed margins reaching 15% during the final quarter of the year.
A constantly shifting market
Whether that will hold is uncertain, Källenius acknowledged. There are so many uncertainties facing the industry right now that one needs to be cautious drawing conclusions about the future.
In an unusual turnabout, what had long been a buyer’s market has turned one favoring sellers — the automakers. Vehicle demand is strong but the chip shortage has made it difficult to keep factories running steadily.
And there are plenty of headwinds that could challenge plans for the future. The Russian invasion has cut off supplies of neon from Ukraine, one of the world’s largest suppliers. That inert gas is essential for manufacturing semiconductors, meaning that shortage could get worse.
That would be particularly problematic for Mercedes as it moves to transition from a traditional automotive manufacturer into one putting more and more of a focus on technology.
“We are putting a stake in the ground,” said Källenius, adding, “we are going to decarbonize our business.”
The automaker had four BEVs in production at the end of 2021. It will end this year with nine and, longer-term, the goal is to eliminate the use of internal combustion engines entirely, though Kallenius is cautious about setting a specific target date. Regulatory moves, as well as market demands, will determine the final timeline, he said previously.
More technology doesn’t just mean more EVs
Along with battery cars, Mercedes is putting a premium on in-vehicle technology. It made a splash with the Hyperscreen in the new EQS sedan. It’s a completely digital display running pillar to pillar across the instrument panel.
“We’re opening up a new profit pool,” the CEO said during his Tuesday roundtable, with software and related services expected to yield 1 billion euros, or $1.1 billion at current exchange rates, by 2025.
This could cover everything from streaming video that passengers could watch to technology like the Level 3 autonomous driving system set to launch this year in Germany on the Mercedes-Benz S-Class.
The addition of over-the-air update technology on all future products will change the game for carmakers and car buyers alike, said Källenius.
“When you bought a car in the past, that marked the peak of its technical capabilities,” he explained. “Now, you can add fresh software and keep adding more technology to the vehicle.”
So, even a previously owned Mercedes will be able to add features that can make it feel new again, Källenius said — while providing the automaker a revenue stream long after the car was driven off the dealer lot.
