27 Aug 2019

Reluctant Daimler shifts gear in race to sustainable mobility

The Daimler Group and its iconic Mercedes-Benz brand are global bywords for luxury cars made in Germany. The company is a classic powerhouse of automobile innovation, but was slow to embrace e-mobility in earnest. Spooked by the success of its former junior partner Tesla, Daimler announced a dramatic shift towards a carbon-neutral mobility future and set itself ambitious new sustainability targets in 2019. The company's new CEO, however, has kept mum on the strategy's details. This factsheet provides an overview of the Daimler Group and its plans to decarbonise. [UPDATE new throughout August 2019]

Daimler Group key figures 2018

Sales: 167.4 billion euros (compared to 2017: +2%)

Net Profit: 7.6 billion euros (-29%)

Unit Sales: 3.35 million (+2%)

Employees (year-end 2018): 298,683 (+3%)

Market capitalisation (August 2019): around 45 billion euros

Sources: Annual report, Daimler factsheet 2018

In contrast to BMW and VW, Daimler is not family-controlled. Its biggest shareholders are Chinese carmaker Geely (9.7%), Kuwait (6.8%), Chinese carmaker BAIC (5%), and French-Japanese partnership Renault-Nissan (3.1%). Institutional investors hold 53.8% percent of shares and private investors 21.6%.

Daimler is headed by CEO Ola Källenius, who took over from his longstanding predecessor Dieter Zetsche in May 2019.

Daimler gear change

Daimler remained sceptical on the future of electric mobility longer than many of its competitors, including arch rival BMW, which launched the dedicated EV brand "i" as early as 2013 [See factsheet Early e-car starter BMW has lost ground in clean mobility race]. That changed after Daimler's former junior partner Tesla, in which the company held a major stake from 2009 to 2014, began outselling the premium Mercedes S-Class in the US. The Stuttgart-based company said in 2016 that the market was now ready for e-mobility. Then CEO Zetsche announced that Daimler would “radically develop into a different company within the next 10 years." Daimler has repeatedly stepped up its electrification plans since then.

The group launched its first purpose-built electric car in 2019, the EQC, a large SUV. Before the EQC's arrival, Daimler offered electric cars only as a modification of models originally developed for conventional combustion engines, a serious limitation when it comes to their interior design. In the same vein as VW, Daimler has developed a dedicated vehicle architecture for pure e-cars, on which the EQC is based.

Daimler CEO Zetsche presents the EQC in Stockholm in September 2018. Photo Daimler
Daimler CEO Zetsche presents the EQC in Stockholm in September 2018. Photo Daimler

In time with the rollout of the EQC, Daimler also committed to a more general climate initiative dubbed "Ambition2039". Shortly before assuming his new role of company CEO, Källenius promised to make the entire Mercedes-Benz Cars fleet carbon neutral by 2039. The company plans to make production in its European plants CO2-neutral by using renewable energy by 2022. By 2030, Daimler aims to have all-electric and plug-in hybrids make up more than half of its car sales. It plans to invest more than 10 billion euros in the expansion of its electric fleet at Mercedes-Benz Cars as well as 1 billion euros in its battery production.

Daimler's climate plans have been described as the "most ambitious target of any major automaker" and "the most ambitious timeline among any of the leading automakers," but detailed comparisons with other carmakers' strategies are impossible because "they're only described in general terms within corporate sustainability reports or CEO presentations, while the details remain confidential," according to the International Council on Clean Transportation, a sustainable mobility NGO.

Unlike VW, which had presented a climate plan described as a "game changer" for the industry earlier in 2019 [For details, see the factsheet Huge EV bet could turn diesel pariah VW into "game changing" pioneer], Daimler didn't bet everything on the EV card, but instead kept its options open. "Our current focus is on battery-electric mobility. But there’s also room and need to continue to work on other solutions, for example, the fuel cell or eFuels," Källenius wrote in a company blog setting out the strategy. He added: "Today, no one knows for sure which drivetrain mix will best serve our customers’ needs 20 years from now. That’s why we encourage policy makers to pave the way for tech neutrality: Let’s fix the target, but not the means to achieve it." Daimler's works council also weighed in to warn that an exclusive focus on battery electric mobility akin to VW's strategy would be a risky bet. Industry watchers point out that Daimler's position in the premium segment means its cars are heavier than many rivals', impeding a switch to pure electric technology. 

Widespread hopes that Källenius would flesh out the new strategy shortly after becoming Daimler CEO were dashed. Instead, the transition from long-time CEO Zetsche has been smooth, without an abrupt change of course. This consistency is partly explained by the fact that the handover at the top of Daimler coincided with a delicate time for the carmaker. Källenius had to announce two profit warnings within a few weeks, and Daimler recorded its first loss in years due to the fallout of the Dieselgate scandal. Research and development (R&D) costs at Mercedes-Benz almost doubled to 14 billion euros within four years because of costs related to electric and autonomous cars. A slowing economy and the US-Chinese trade spat pose additional challenges for the global company.

Källenius has said he plans to present a new company strategy for the coming years in November. Some industry analysts said Källenius was right not to rush. "The situation of German premium carmakers is very precarious – that's why Daimler should take sufficient time to develop a sustainable plan," Arndt Ellinghorst from investment consultancy Evercore ISI told German industry publication Automobilwoche.

Cost-cutting cooperations

Daimler is seeking salvation from the overwhelming cost pressures associated with the switch to future mobility in cooperative efforts with other carmakers. The company announced in early 2019 to team up with China's Geely, its largest shareholder, to turn the Daimler brand Smart into a "leader in premium-electrified vehicles”.

In what German business daily Handelsblatt called a "historic partnership" to take on Google and Uber, BMW and Daimler agreed to a broad alliance in mobility services in early 2019 involving the merger of BMW's DriveNow car sharing business and Daimler's Car2Go. The companies launched five shared brands: the car sharing Share Now; ride-sharing unit Free Now; the Park Now parking service; the Charge Now EV charging service; and Reach Now, which facilitates bookings across various modes of transport. The companies say their existing services already have roughly 60 million customers worldwide.

BMW and Daimler have also pooled resources in order to get the ballooning costs of self-driving cars under control.

True conviction?

Company watchers believe that pressure from Geely, its largest shareholder, has been an important factor in pushing Daimler to embrace electric mobility. They point to the example of Swedish carmaker Volvo, which committed to phase out pure gasoline cars after 2019, focusing exclusively on electric and hybrid models, after it was taken over by Geely. Adding to this strong influence from e-car pioneer China, EV specialist BAIC became the second major Chinese Daimler investor in July 2019.

Yet Daimler's climate ambitions have not silenced all critics. Climate advocacy groups lament the company’s continuing affiliations with trade groups that actively lobby against stricter car emission rules, both in Germany and the US. British NGO InfluenceMap, specialised in assessing company climate lobbying, graded Daimler an overall "E+" in 2018 because "evidence suggests the company has not supported various policy developments to increase ambition on automotive sector emission reductions. For example, in 2018 Daimler has called EU CO2 targets from 2021 "very challenging", also stating that it could not guarantee that it would be compliant.

Source InfluenceMap

A PR blunder during the 2019 summer heat wave illustrated that not all parts of the company had internalised the new message – Mercedes-Benz advertised a horsepower-proud model on Twitter with the words: "If this summer wasn't warm enough already, the Mercedes-AMG GLA 45 4MATIC will heat things up even more with this red-hot finish." The company apologised soon afterward, but many Twitter users questioned the company's true convictions.

NGO Environmental Action Germany (DUH), a vocal industry critic which set the ball rolling on inner-city driving bans, highlights that notwithstanding its mostly green rhetoric, Mercedes is launching the "monster SUV" GLS, which will top the short-term record holder BMW X7 as Germany's largest SUV. "Since the Mercedes GLS is too wide for car washes, it bends its wheels inwards. These are the absurd 'innovations' of which German carmakers are so proud," DUH says.

Additionally tainting Daimler's green ambitions, the company is increasingly embroiled in the Dieselgate scandal, despite its insistence of no wrongdoing. The European Commission officially accused carmakers VW, BMW and Daimler of illegal collusion to avoid competition on emissions reduction technology in April 2019. German authorities have forced Daimler to recall more than 800,000 cars over potentially illegal software to skirt emission rules.

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