Mercedes’ electric profits to match those for combustion models by end of decade

Mercedes-Benz will earn as much from electric cars as its luxury combustion engine models by the end of this decade, its chief executive said, becoming the first premium German automaker to provide a precise target for the turning point in profits.

Ola Källenius, boss of Mercedes owner Daimler, revealed the timetable after the company announced it would divorce its car arm from its trucks unit in an attempt to ape the soaring market valuation of electric auto pioneer Tesla.

“Our task is to take the healthy business model of today and to prove to ourselves and to the financial markets that we can have healthy returns when we become a dominant electric company,” Källenius told the Financial Times.

Markus Duesmann, head of rival luxury carmaker Audi, told the FT in January the brand’s electric cars would match combustion engine profits within a “very few years”. Porsche and BMW, rival premium German carmakers have yet to provide precise dates.

The cost of electric components, such as batteries, were declining rapidly, Källenius said, meaning the Stuttgart-based company would “eventually have the same contribution margins on electric vehicles as we have on the combustion vehicles”.

Our task is to take the healthy business model of today and to prove to ourselves and to the financial markets that we can have healthy returns when we become a dominant electric company

Källenius, who took the helm of Daimler in 2019, announced on Wednesday the company would spin off its truckmaking division and float it on the Frankfurt stock exchange, creating the world’s largest standalone commercial vehicle manufacturer. Analysts estimate it could be valued at about €35bn.

The remaining passenger car business, which will be renamed Mercedes-Benz, will maintain a minority stake in the truck spin-off that is likely to be no smaller than a blocking minority of 25 per cent, according to a person close to the company.

Mercedes’ renewed focus on luxury electric vehicles would allow the slimmed-down company to “unlock the potential” of its stock, the Swedish boss said.

The move, which is the largest reorganisation of Daimler since its demerger from Chrysler more than a decade ago, “crystallises value that is hidden in the conglomerate”, he added.

Daimler’s share price has risen about 10 per cent since the announcement, but its market valuation of €72bn, remains less than a 10th of the size of Tesla’s, even though the German company sold more than four times as many cars as its American rival last year.

However Daimler, which has electrified its Smart brand, sold fewer than 50,000 purely electric cars and vans in 2020, while Tesla sold almost 500,000.

Källenius said that Mercedes, which would unveil four new battery-powered models this year, including an emissions-free version of its S-class saloon, was due a re-rating by investors because of its strong brand and technical expertise.

In a thinly veiled reference to newer competitors, Källenius said that with a Mercedes, “even if you don’t know technology, subliminally you understand you’re sitting in something that is superior”.

“Why shouldn’t we be able to tap into that fantasy in the capital markets?” he added.

The former Formula 1 executive said the planned spin-off, which is due to be completed by the end of the year, would allow Daimler Trucks to gain the “full attention” of investors, because the division would no longer be relegated to the “last 45 minutes of a five-hour long Daimler capital market presentation”.