Mercedes bemoans ‘brutal’ EV competition

The message about the current state of the EV market coming out of the third quarter results call of German heavyweight Mercedes could not have been clearer. The following series of quotes from the firm’s CFO Harald Wilhelm tell their own story:

“Intensified competition, especially on the EV side.”

“I would say definitely, I think the EV space is an extremely competitive space.”

“Yes, EV is a very competitive space… I would say this is a pretty brutal space.”

“I repeat, on the EV side of things, this is extremely competitive these days.”

“The space today, I think, is very competitive.”

“The current environment is not a healthy and a sustainable one moving forward.”

Price cuts that are slashing margins and slower-than-anticipated BEV adoption are major drivers Mercedes sees as creating the challenging market conditions. But, longer-term, the firm aims to leverage its strong ICE position to both buoy it through the current choppy waters, and maybe even later take on useful passengers from others under water.

“With price discounts from some of the other guys of more than 30pc, some of the traditional players are selling BEV vehicles below the pricing level of ICE with variable costs probably sitting above,” Wilhelm suggests.

“On the other side, we see a customer adoption rate running at a lower level,” he continues.

Mercedes is not totally despairing of its current BEV position. EV sales, including PHEVs, made up 20pc of its overall Q3 sales, with BEVs alone making up 12.2pc. BEV sales were up by two-thirds compared to the third quarter of last year, rising from 37,000 to 62,000.

“If you look more specifically to the EQS SUV sales, they more than doubled in the quarter,” says Wilhelm. “In total, in this quarter, we had EQE and EQS sedans and SUVs of around 24,000 units. I think that is a good number for a brand-new platform.”

“In the US, BEVs are growing nicely, with year-to-date EQS registrations ahead of relevant top-end competitors, he continues. In China, Wilhelm points to Mercedes ranking number one in terms of customer experience satisfaction in a survey of NEVs by the Chinese arm of consultancy JD Power.

ICE to have

But the firm still aims to take advantage of its “tactical flexibility to adjust in terms of the EV ramp” in response to the competition crunch. “There is an upside potential from the tactical flexibility of the portfolio — namely, a very competitive and margin healthy ICE portfolio,” Wilhelm says.

“I think this is exactly the benefit of a company transitioning from ICE into BEV, rather than being BEV only.”

He stresses, though, that this should not be taken as a lack of long-term commitment to EVs. “We completely stick to the strategy in terms of full electrification and we are doing all of the investments for the products,” the finance chief notes.

But Mercedes may look more towards a “second wave, after the first wave of early adopters grabbed what [they] can get in the market with heavy discounting”. Wilhelm anticipates, with greater EV adoption to come, “a much broader wave of customers then honouring the value of the products”, meaning Mercedes will not have to chase discounts.

Consolidation to come

And he also sees others — potentially those without an ICE portfolio to fall back on — not surviving to see this promised land. “I think we will see some consolidation… some normalisation,” Wilhelm says.

“I can hardly imagine that the current status quo, is fully sustainable for everybody. What we have to do [is] play the long game."

One obvious question is whether Mercedes might consider future acquisitions among those with promising EV technology but without the cashflows to ride out the current storm. Analysts note that a war chest is growing — "you clearly left us under the impression that you're sitting on too much net cash ," says Patrick Hummel of US bank UBS of Mercedes' dialogue at last month's IAA Mobility in Munich.

Wilhelm is coy, but does stress that Mercedes will want to put its cash pile to use, rather than solely for accelerated dividends or buybacks. " On the net cash, I know you all want to have the €28bn back now. No, we are not doing that," he says. 

The firm is instead spending some of it beefing up its position for the EV second wave. “We invest into the product, into the charging. We address the customer concerns, which might still be today range anxiety,” Wilhelm continues.

And the firm is putting its money where its mouth is in this area, committing material Opex to its “branded high-power charging network”. The firm is developing its own charging network, as well as signing up to Tesla's NACS protocol in the US and joining a seven-strong OEM consortium to develop an alternative North American network.

For the full year, its margin guidance is now at the lower end of a previously communicated 12-14pc.“Without the increased Opex for charging, probably we would expect for full year rather at the middle of the range,” Wilhelm says.