Mercedes-Benz Group AG is gearing up to unveil a near-record slew of new models after its first generation of battery cars fell short. The product offensive over the next two to three years will also see the S-Class maker pivot to spending more on its lucrative lineup of fuel-burning vehicles. Top-level buyers in particular “keep reaching for our high-tech combustion-engine cars,” Chief Executive Officer Ola Källenius said in an interview.
“We need flexibility for longer, until deep into the 2030s,” Källenius said, keeping intact the company’s goal of being carbon-neutral by 2039. “We remain committed to offering electric versions of the entire lineup this decade but we have to ensure our combustion-engine cars remain competitive.”
The world’s biggest premium carmaker has pared back plans on electrification after demand slowed especially in Europe. But Mercedes is also trailing rivals like BMW AG after its EV lineup put off buyers with high prices and design missteps. Battery vehicle sales fell 9% during the first quarter to 50,500 units while its Munich-based competitor surged to 82,700 vehicles.
Mercedes shares gained as much as 2% in early Frankfurt trading. The stock is up just over 4% this year, outpacing a 0.8% rise in the Stoxx Europe 600 Automobiles & Parts Index.
The EQS, available since 2021 and billed as one of the most significant launches in decades, in particular has fallen short, drawing unflattering comparisons to a jellybean amid low sales. The €109,500 ($117,100) sedan’s sloping roof to maximize aerodynamics cramped many of the chauffeur-driven customers, especially among buyers in China, who missed status-symbol details like Mercedes’ characteristic three-pointed star on the hood.
The sales flop contributed to Mercedes’ decision to walk back its ambitious goal of only selling EVs where possible by 2030 to a target of around 50%. The tepid demand also triggered costly design upgrades, with the face-lifted EQS due next year getting more back seat comforts and the star back on its hood. During the first quarter, higher spending on what Mercedes dubbed “lifecycle management” partly dragged on returns that fell to 9% from 14.5% a year earlier.
Next year will kick off the next generation of vehicles built on new underpinnings, starting with the entry-level CLA coupe and later the GLB SUV. During a preview of the upcoming suite of cars in Sindelfingen, Källenius was keen to demonstrate sufficient roominess in even the smaller models, squeezing his tall frame into the back seats.
Mercedes also plans to bring out an electric compact version of the G-Wagon in 2026.
The CLA will be available as battery as well as combustion engine versions. At the time of its launch, the model is set to head the current portfolio on some driving assistance systems and computing power, Källenius said at the company’s design center in Germany’s Sindelfingen.
While combustion-engine cars will generate superior profits for longer, the Stuttgart-based company is continuing to push for savings in purchasing, streamline fix costs and non-essential spending, Källenius said.
Mercedes could potentially also free up as much as €10.5 billion by selling its remaining stake in Daimler Truck Holding AG, which was spun off in 2021. The lockup period for the carmaker’s 35% holding expires at the end for the year.
“The stake represents an additional reserve in addition to our net industrial liquidity,” Källenius said, adding there has been no decision while the carmaker is “fully focused on the needs of the Mercedes customer.”
Daimler Truck rose as much as 2.9% in Frankfurt with the stock up by a fifth in the past year. Since trading separately from Mercedes, the world’s biggest commercial vehicle maker has risen 38% at a market valuation of €31 billion.
The company is also conserving spending for now with two of its three €7 billion joint European battery plant developments on hold. Automotive Cells Company Company SE, co-owned with Stellantis NV and TotalEnergies SE, has paused work in Germany and Italy to weigh a pivot to making lower-cost cells in light of slowing EV demand.
“We will build battery cell plants at the speed with which we’ll need them,” Källenius said. “We have to match capital allocation to the rate of adoption.”
The shift to EVs is also being challenged by geopolitical tensions. The European Union is set to formalize provisional tariffs on China-made battery cars this week with duties rising to as much as 48%. Should the charges go ahead, Smart models made by Mercedes’ and China’s Zhejiang Geely Holding Group Co.’s venture in China will attract a 20% tariff on top of the existing 10%, Källenius said.
“When you have benefited from open markets as Germany has for decades, it doesn’t make sense to possibly trigger a trade conflict,” he said. “We manufacture the Smart in China with our partner Geely and are thus importing cars to Europe at a significant scale.”
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