Mercedes Plans More EVs, Cuts Costs to Fund Them

Daimler AG’s Mercedes-Benz unit plans to offer electric variants of all its models by 2022 and is launching a €4 billion ($4.8 billion) cost-cutting program to help counteract initial lower profit margins expected from such vehicles.

The initiative, which was announced Monday at Mercedes’ investor day in Sindelfingen, calls for at least 50 hybrid or full electric vehicles within five years. The carmaker’s Smart brand will convert all its models to full electric power by 2022.

Daimler estimates as much as 25% of its passenger cars and crossover vehicles will be electrified by 2025. Three-fourths of these vehicles are expected to be direct replacements for more profitable piston-powered models.

But EVs initially may provide only half the profit margin of their combustion engine counterparts and not reach cost parity until 2025, says Frank Lindenberg, vice president of finance and controlling for Mercedes-Benz Cars. To offset lower returns, Daimler aims to save €4 billion by 2025, including €1 billion from fixed costs and another €1 billion from research and development and capital expenditures. The €2 billion balance is expected to come from lower product costs.

Mercedes also may outsource more work to suppliers to help lower EV costs. Vertical integration could be “reduced significantly,” says CEO Dieter Zetsche, noting that in-house production is “almost irrelevant to the customer.”

The cost-cutting plan is part of Daimler’s latest “Fit for Leadership” efficiency program. The company completed its first two such initiatives earlier this decade.