Mercedes-Benz delayed its electrification goal by five years last week, assuring investors that it would continue to work on combustion cars. Mercedes, among other well-known automakers, has raised concerns about the lower-than-expected demand for battery-powered cars.
Five years after releasing a prediction in 2021 that stated it would reach the 50% milestone by 2025 with predominantly all-electric cars, the company now projects that sales of electric vehicles (EVs), including hybrids, will make up as much as 50% of the total by 2030. Although suppliers and automakers are placing a lot of money on the idea that there will be a market for electric cars in the future, investment in capacity and technological advancement has outpaced the demand for EVs, which has forced automakers to update their production schedules.
CEO Ola Kaellenius issued a warning at the end of the previous year, stating that even Europe was unlikely to be prepared for an all-electric lineup by 2030. Various surveys revealed that customers were delaying purchases for a variety of reasons, such as a lack of convenient charging stations and attractive electric models.
Mercedes expects lower profits due to slowing economy this year
Mercedes-Benz Group AG, the premium automaker, issued a warning that electric vehicles would continue to cost more than combustion cars for many years to come as it prepares to meet the declining demand for plug-in vehicles. The German automaker stated that reduced returns in 2024 are expected due to market conditions and a declining economy. Mercedes also reduced its EV sales forecast, with demand concentrated in the small and medium segments, where it is not as prevalent.
Mercedes gained as much as 5.4%, its largest intraday increase since November 2022, after launching a €3 billion ($3.2 billion) share repurchase scheme. In addition, the CEO mentioned the possibility of future buybacks if Mercedes can continue to generate free cash flow, as it has in recent years.
The automaker has long benefited from pent-up demand, which has helped to mitigate some of the economic challenges. However, orders are expected to normalize this year as rising living and borrowing costs weigh on consumption. The company also faces fierce competition in its key market, China, which plans to launch 15 new models this year, as well as pressure from Tesla Inc.’s frequent price cuts.
Automakers are now more cautious when it comes to battery technology. According to BloombergNEF, the growth in fully electric car sales this year is expected to be the slowest since 2019, and the sudden halt in momentum is expected to intensify competition. Audi, Mercedes’s rival, announced late last year that it was scaling back its EV launch.
Investing in both EVs and combustion cars
Mercedes has realized that there will always be a need for both EV and combustion cars, so they are approaching the future in multiple ways. They are investing heavily in the development of new electric vehicles (EVs) and updating their lineup of combustion cars at the same time. This strategy reflects a shift in their initial EV targets, to have half of their sales be electric or hybrid by the latter half of this decade rather than 2025, as previously stated. Furthermore, they intend to gradually transition some production lines, and possibly entire factories, to focus solely on EVs in the coming years. Mercedes’ adaptability demonstrates its commitment to the changing automotive landscape while remaining financially stable.
Mercedes forecasted market share
The company predicts that this year, with relatively stable unit sales, the automaking margin could be as low as 10%. Last year’s profitability was 12.6%, which was near the lower end of projections. This year, the share of fully electric and plug-in hybrid vehicles will remain roughly constant, at 19% to 21% of Mercedes sales. The manufacturer has revised its medium-term projections for the technology, anticipating that EV sales will reach 50% in the second half of this decade instead of 2025.
Mercedes expects its next-generation EVs to make a significant difference beginning in the middle of the decade, with variable platform costs projected to be 30% lower. Models include an electric version of the CLA, a medium-segment car that can go more than 750 kilometers (466 miles) on a single charge, outperforming Tesla’s revised Model 3.
