German luxury carmaker Mercedes-Benz will let market forces determine EV adoption and will maintain ‘tactical flexibility’ until a tipping point is reached, explains the MD and CEO of Mercedes-Benz India.
12 May 2024 | 13421 Views | By Mayank Dhingra
Amidst the global transition towards EVs, and with its vision to achieve carbon neutrality by 2029, German luxury carmaker Mercedes-Benz has realigned its strategic focus on ICE powertrains along with electrification, as the latter is witnessing slower-than-expected adoption curve across several markets the world over. The Managing Director and CEO ...
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Amidst the global transition towards EVs, and with its vision to achieve carbon neutrality by 2029, German luxury carmaker Mercedes-Benz has realigned its strategic focus on ICE powertrains along with electrification, as the latter is witnessing slower-than-expected adoption curve across several markets the world over. The Managing Director and CEO of Mercedes-Benz India, Santosh Iyer, reiterates the company’s global powertrain roadmap, as well as the EV growth expectations from the Indian market.
Amidst the global transition towards EVs, and with its vision to achieve carbon neutrality by 2029, German luxury carmaker Mercedes-Benz has realigned its strategic focus on ICE powertrains along with electrification, as the latter is witnessing slower-than-expected adoption curve across several markets the world over. The Managing Director and CEO of Mercedes-Benz India, Santosh Iyer, reiterates the company’s global powertrain roadmap, as well as the EV growth expectations from the India market.
The market adoption of EVs did not pan out according to the expectations of OEMs. As an analogy, it is like sauce coming out of a ketchup bottle. While the OEMs anticipated it to flow freely in one go, it is still coming out in spurts. It is not the market that is at fault; the industry expected the adoption to be faster, but factors like insufficient charging infrastructure, and lack of consumer awareness about the technology itself, are the key reasons for the slower adoption of EVs.
Therefore, as our core strategy, we have not exited any powertrain, and continue to have petrol engines, diesels, and for markets with specific regulatory requirements, we also have PHEVs, and HEVs. While the total share of EV drivetrains in Mercedes-Benz’s global portfolio at present stands at 19 %, whether it will touch 50% over the next three years, we do not want to hazard a guess or start producing products, and then find customers. We would rather let the customers and market forces decide the EV adoption curve.
We have been consistently maintaining that the market and consumer will decide the pace of EV transition. Having said that, we are also clear on our carbon neutrality goal – ‘Ambition 2029’ – that we set for CY2029. OEMs like Mercedes-Benz will play a key role in educating customers, spread awareness, and build the charging infrastructure by virtue of partnerships, and allowing more access to the charging ecosystem, as one cannot solely look up to the government for everything.
Therefore, at this stage, we have given a mid-term outlook that we will maintain a tactical flexibility for both ICE and EVs. Therefore, we will offer a full portfolio across the two powertrains, and must also not be caught napping, particularly with respect to EVs.
For Mercedes Benz, we are relying on our core balance sheet to fund the EV business as well as new technologies that are required for both ICE and EVs. We have very strong cash flows, and have been transparently sharing our capital allocations. We have also offered share buyback options to our shareholders. Therefore, it is reassuring for the shareholders to see the company being pragmatic.
While we will continue our investment focus on EVs, at the same time, we will continue investing on the ICE front as well. Across the product lifecycle, we will continue investing in both ICE and EVs. We are calling this strategy as tactical flexibility as we consider the EV transition to be a marathon and not a sprint.
Having said that, collaborations, more so in charging infrastructure, will also keep emerging. On the other hand, when it comes to the core EV technology, these will continue to remain autonomously with each OEM and technology player. For instance, our association with NVIDIA will enable us to offer state-of-the-art semiconductor chips in our future models.
India would be no exception compared to other parts of the world as developing markets typically follow developed economies with a four-five-year time lag owing to regulatory requirements. Currently, we must first wait to see when the developed markets transition to EVs fully, and then it could be ascertained how the emerging economies will adopt the technology. With respect to India, whether the country can leapfrog developed economies, that would depend on the top carmakers in the mass market segment in India bringing more EVs in multiple price brackets.
With only a handful of mass-market EV products today compared to the more than hundred ICE offerings, the comparison is not fair. Having said that, the leap of faith for mainstream OEMs would also lie in the fact that the well-established ICE business is an extremely profitable one. The transition to EVs will depend upon charging infrastructure, and the technology of future products.
A robust charging infrastructure and consumer awareness will lead to a gradual shift in the market over a period as customers will get used to driving EVs. Moreover, as the technology matures further wherein as EVs start offering higher range and the need for frequent charging gets eliminated, they will seldom go back to ICE. As Mercedes-Benz, one of our biggest strengths when it comes to EVs is range. On the other hand, iconic luxury designs, and technology will continue to remain our key areas of focus when it comes to EVs or ICE. These will continue, irrespective of the drivetrain, be it ICE or EVs. I think this will be extremely beneficial for India where we will introduce our entire global EV portfolio over the next couple of years. We will not lag in bringing EVs to the Indian market, and will launch three new EVs in CY24 itself.
When it comes to the residual value of a vehicle, it is determined by the demand for the model in the new car market. Today, there are enough studies to calculate the residual value of an EV’s battery compared to an IC engine at the end of 15 years, and if we extrapolate that to the scrap value of the entire vehicle, EVs tend to offer up to three times higher residual value compared to ICE cars.
The battery, which comprises 60% of an EV’s value, can be recycled to up to 97%, thereby offering a captive mine to form a new battery. Even today, our partners like Lohum can recycle a battery in India. From a technical perspective, EV batteries can offer better second-life applications, particularly in solar and renewable energy storage systems.
Having said that, considering the typical vehicle ownership cycles of 3-5 years, we are working to offer the same residual values for our EVs as ICE, at the end of five years. We are the only OEM to offer a residual value guarantee on our ICE as well as our EV range in India. With low volumes, we are working on the acceptability of the market for EVs, and therefore, we want to avoid pushing sales by virtue of heavy discounting. While we offer 50% road tax benefit on EVs in certain states where government incentive is lower. It is a matter of time that the adoption picks up.
Within hybrids, there are plug-in hybrid electric vehicles (PHEVs) — which while can enable a car to go around 100km on pure-electric power — are significantly expensive to implement. On the other hand, the 48V mild-hybrid technology makes the vehicle more efficient, helps meet compliance norms, and reduces emissions. This technology is today standard on all our ICE offerings, and while we must not ask the government for support for 48V technology, the advantage to the consumer is the enhanced fuel efficiency. Therefore, we will not take the plug-in hybrid route because of the insignificant advantage compared to the cost of the technology.
For India, our prognosis is that with a combination of diesel, petrol and EVs, we will continue to maintain our market leadership. At present, we are at a 40:60 diesel-petrol mix, with most of our large SUVs like the GLS and GLE particularly continuing to draw strong demand in diesel form. On the other hand, EV penetration at currently stands at 4% of our overall volumes.
This interview was first published in Autocar Professional's May 1, 2024 issue.