Mercedes-Benz Adjusts its Electric Vehicle Strategy Amid Slowing Demand
In a recent strategic shift, Mercedes-Benz has indicated a moderation in the expected demand for electric vehicles (EVs) and announced plans to rejuvenate its combustion engine vehicle lineup stretching well into the next decade. This move places the renowned automaker amongst others who have observed a less rapid transition to electric mobility than previously forecasted.
Reevaluation of Electrification Goals
While Mercedes-Benz had set ambitious targets aiming for a substantial electrified vehicle sales quota by 2030, including hybrids and all-electric models, the company now projects that EVs and hybrids will compose up to 50% of its sales by that time. This adjustment reflects a recalibration of their market expectations, acknowledging the hurdles to a widespread adoption of electric vehicles, such as inadequate charging infrastructure and a current lack of appealing EV options for consumers.
Persistence of Combustion Technologies
Ola Källenius, CEO of Mercedes-Benz, has emphasized the brand’s capability and readiness to continue production and innovation within its combustion engine range. The statement comes amidst growing observations that Europe, amongst other regions, may not fully transition to electric vehicles by the 2030 timeline. Källenius highlighted plans for a significant update to their combustion engine offerings by 2027, anticipating these models to be competitive well into the 2030s.
Challenges and Uncertainty in the Auto Industry’s Landscape
Economic and Supply Chain Constraints
The auto industry faces a challenging period marked by slower economic growth and persistent supply chain disruptions. For Mercedes-Benz, these factors are compounded by geopolitical tensions, particularly involving China, the U.S., and the European Union, affecting the company’s sales outlook for 2024 and resulting in anticipated lower returns on sales in both its car and van divisions. The initial quarter’s sales are also expected to fall short of the previous year’s figures.
The Reality of EV Demand
Contrary to the high expectations for electric vehicle uptake, Mercedes-Benz reports that electrified vehicle sales, including hybrids, are anticipated to continue hovering around 19-21% of total sales. This aligns with broader industry trends indicating a slower growth rate in EV demand than initially anticipated. Despite these challenges, Mercedes-Benz managed to maintain a 12.6% adjusted return on sales in its car division for 2023, in line with its projections, even as inflation and supply constraints impacted profits.
Financial Outlook and Investment in Future Technologies
Looking forward, Mercedes-Benz projects a moderated adjusted return on sales for its car and van divisions in 2024. However, in a promising sign of its commitment to innovation, the company has increased its investment in research and development, focusing on future technologies like its MB.OS platform. Despite a slight increase in average vehicle prices and a marginal rise in revenue, group earnings before interest and taxes showed a decline, signaling the financial pressure the industry is currently experiencing.
Mercedes-Benz’s strategic pivot underscores the broader auto industry’s grappling with the pace of the transition to electric vehicles, balancing between maintaining profitability and adapting to evolving market demands and technological advancements.
