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Dieter Zetsche, Daimler AG CEO

Daimler Reins In Investments After Electric Engines Prompt Surge

Oct. 12, 2016
Switching well-established production and research setups from conventional autos to battery-powered models is raising the need to cut costs to ensure future profitability.

Daimler AG (IW 1000/12) will scale back investments in plants, equipment and new technology from a peak this year stemming in part from its creation of the EQ electric-car sub-brand, amid a push to maintain profitability.

The manufacturer “is fighting” to get capital and research-and-development spending down to 12 billion euros (US$13.2 billion) to 13 billion euros next year from 14 billion euros in 2016, Chief Executive Officer Dieter Zetsche told reporters at the Hamburg club of business journalists late Tuesday.

“The range of investments is an extreme challenge,’’ as both electric and conventional vehicle-powering systems will need work in coming years, Zetsche said.

Carmakers’ development spending is surging as the industry faces regulatory pressure to reduce vehicle emissions and delves into advanced technology such as automated driving. Stuttgart, Germany-based Daimler and BMW AG, its main competitor, are both planning for electric cars to comprise as much as 25% of their deliveries in the next decade. Switching well-established production and research setups from conventional autos to battery-powered models is also raising the need to cut costs to ensure future profitability. Daimler’s cars division has a target to keep its return on sales at 10%.

Daimler’s Mercedes-Benz nameplate is set to overtake BMW’s namesake brand this year as the world’s biggest luxury-car maker. “The pole position is already within reach” for achieving Daimler’s 2020 target of ranking No. 1 in the premium segment in terms of both profitability and deliveries, Zetsche said. It’s also “well on track” for earnings growth in 2016 after nine-month sales at the Mercedes-Benz Cars division jumped 12%, he said.

The Mercedes luxury-auto brand and Daimler’s Smart city-car unit are introducing at least 10 battery-powered cars in coming years, and the development budget includes 1 billion euros in battery technology. Zetsche presented a sport utility vehicle prototype with the Mercedes EQ badge at the Paris Car Show last month to emphasize the company’s commitment to e-cars. The strategy doesn’t mean Daimler will stop working on new engines that use conventional gasoline or diesel fuels more efficiently, the CEO said Tuesday.

“We cannot stop advancing combustion engine technology, even if 25% of vehicles sold in 2025 are e-cars, as 75% won’t be,” he said. Ever more efficient combustion engines will account for the bulk of carbon-dioxide emission cuts “for a longer period of time,’’ as shown with the new Mercedes E-Class sedan’s diesel motor, he said.

By Nicholas Brautlecht and Elisabeth Behrmann

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