Mercedes to be ready for car markets going electric-only with $47-bn push

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 best-selling luxury-car maker through a historic industry transformation.

The manufacturer plans to launch three new all-electric vehicle platforms in 2025 and set up eight additional battery factories with partners, it said in a strategy update Thursday. Mercedes is betting that the luxury segment will shift faster toward battery-powered products 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 a competitive range that challenges models from Tesla Inc.

The company said it’s sticking to its profitability targets amid the EV shift. It didn’t give a concrete date for when it will phase out combustion engines as the pace of the shift toward batteries has varied widely across different regions. Mercedes will 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, including MB.EA for mid-sized and larger passenger cars, AMG.EA for performance cars and VAN.EA for electric vans and light commercial vehicles.

Striking additional partnerships in Asia and Europe to source batteries. The company needs more than 200 gigawatt-hours of cell capacity by 2030.

Bolstering its 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.

So far, Mercedes has said it expects plug-in hybrids and fully electric cars to account for more than half of global car sales as soon as 2030. 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’s projected an annual return on sales for the cars and vans division between 10% and 12%, despite heavy investments in EVs and other future technology.

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.

The EV strategy update is one of the last showcases for Mercedes leading up to Daimler’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.”