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Mercedes-Benz Intensifies the Electric Car Arms Race

Mercedes-Benz announced Monday that it will offer electric versions of all its models by 2022—a scant five years from now. This comes on the heels of Volvo’s shocking July announcement that it will only offer hybrid and all-electric models by 2019. Without a doubt, the electric car arms race is heating up faster and with far more intensity than most industry analysts expected.

While industry regulation and environmental pressure are playing a key role in the trend toward electric vehicles, manufacturers are also proactively taking their own initiative. Mercedes is drastically re-allocating financial and engineering resources so they can compete in the years ahead. The automotive industry is facing a decade of upheaval and Creative Destruction. A migration towards electric propulsion and autonomous technologies are already exerting immense changes that are impacting governments, consumers, and manufacturers alike.

While Tesla may currently have a first-mover advantage in the EV market, the global competition is coming on strong. Even domestic manufacturers are in the game with competitive products. The new Chevrolet Bolt EV is receiving accolades and retails in the low $30’s. The road is littered with first movers that never succeeded in owning the high ground of their respective industries. Tech strategist Gerardo Dada points out that Facebook was not the first social network and Google was not the first search engine. Many assume incorrectly that GM was the inventor of the automobile. It will be interesting to see how Tesla fares in the coming years as other manufacturers rapidly bring new electric vehicles to market. Clearly, Wall Street is not concerned as Tesla (NYSE TSLA) is trading near an all-time high and now has a market capitalization significantly higher than Ford. Despite numerous dilutive financings since 2013, Tesla stock seems to defy gravity—even in the face of a massive cash burn rate and a lack of profitability.

Right now the financial reality of electric vehicles poses an enormous challenge to industry profitability. Bloomberg estimates that General Motors is expected to take a loss of between $8,000 and $9,000 per Bolt sold. As the two articles below outline, electric cars have skinny margins for manufacturers and higher costs for consumers. They also present enormous infrastructure challenges and lack the range of internal combustion engines. Like early flat screen TV’s that retailed for $7500, electric vehicle prices will come down as adoption rates increase and technologies improve.

All-electric Mercedes SUV prototype

The following articles were published by Reuters and Bloomberg this week:

FRANKFURT (Reuters) – Daimler’s (DAIGn.DE) Chief Executive Dieter Zetsche on Monday said Mercedes-Benz will offer electric versions of all its models by 2022, converting its Smart city car brand to become fully electric.

Speaking at the company’s investor day in Sindelfingen, Germany, Daimler (DAIGn.DE) said it will offer at least 50 electrified versions of Mercedes-Benz passenger cars in hybrid and fully electric car variants.

Because electric cars have a lower margin than combustion-engine cars, Daimler has set itself a more ambitious savings target. The company’s Fit for Leadership 4.0 plan targets savings of 4 billion euros ($4.8 billion), Daimler

Daimler Targets $4.8 Billion Saving to Offset Electric Shift
Electrified car margins only about half at the beginning
Smart city-car brand to become electric-only as of 2020: CEO

By Elisabeth Behrmann (Bloomberg) —

Daimler AG intends to slash 4 billion euros ($4.8 billion) from spending by 2025 to offset weaker margins from electric cars amid a backlash over pollution from conventional vehicles. The maker of Mercedes-Benz and Smart cars will seek to lower fixed costs, research and development spending and capital expenditures to shore up profitability due to higher costs for batteries and other electric-vehicle components, the Stuttgart, Germany-based manufacturer said Monday in a presentation to investors. Daimler expects the profitability of electric and combustion-engine cars to be on par by the middle of next decade.“We aim to have 25 percent of electrified vehicles by 2025 and those cars will have lower margins at least in the beginning of their life cycle,” Frank Lindenberg, head of finance for the Mercedes-Benz Cars unit, said on a webcast. “Let’s assume they have about half of the margin compared to an ordinary car.”Daimler, Volkswagen AG and BMW AG, are accelerating electric-vehicle plans to react to slumping sales of diesel models amid the fallout from VW’s emissions-cheating scandal. With their big cars, German automakers are particularly reliant on diesel in their home market of Europe and had been banking on the fuel-efficient engines to help meet ever tougher emissions rules that will tighten further early next decade.

Smart Transition

At the Frankfurt International Auto Show this week, Mercedes will debut an electric hatchback, part of a 10 billion-euro project to release 10 electric vehicles by 2022. In addition to the new EQ line of battery-powered vehicles, the manufacturer will add electrified variants across its entire model range, including so-called mild hybrids with a smaller battery that doesn’t require a plug to be charged.

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