Daimler saves euros to pay for EVs

STUTTGART — When Ola Källenius succeeded Dieter Zetsche as Daimler CEO in May, the group was projecting a slight increase in operating profit and forecast an 8 to 10 percent return at its core Mercedes-Benz passenger-cars division by 2021.

It hasn't turned out that way.

After one month on the job, Källenius, now 50, issued his first profit warning. The second followed fewer than four weeks after that. In November, he postponed indefinitely the profit-margin target for Mercedes, citing heavy costs to be carbon compliant in Europe. The company announced plans to cut 10,000 jobs by 2022. And in January, he had to pre-announce full year results that fell short of market expectations.

Rather than advance his long-term plan to decarbonize the company, the former manager of its massive assembly plant in Vance, Ala., has had to focus on conserving cash. Daimler slashed the dividend by almost three-quarters, put a limit on Mercedes capital expenditures and aims to generate cash earnings at a faster clip.

"We want to implement our long-term strategy rather than some sort of stop-and-go approach where we ask ourselves following a geopolitical or macroeconomic event if we can afford it," finance chief Harald Wilhelm, who aims to maintain net industrial cash at least a €10 billion ($10.9 billion) level, told Automotive News Europe.

That means unprofitable business models such as its car-sharing joint venture with BMW called ShareNow likely will have to look to new investors for fresh equity.

Rising costs are "putting significant pressure on our balance sheet, cash position and credit rating," the former Airbus CFO said.

To prioritize investments where management sees better chances, spending on capital expenditures and research and development are being capped at a combined €16 billion for Mercedes. Materials costs will be reduced by a cumulative 3 percent over three years, and personnel costs are to be cut by more than €1 billion through the end of 2022.

"We have too many plants in Germany," said one senior manager who declined to be named. "But the works council leaders on our board are locally elected by employees at their respective plant, so naturally they won't allow us to close any — even though they themselves know it's necessary."

Källenius, appointed to the board in 2015 when he was sales chief, assured shareholders that he would not accept another year like 2019. "It's not good enough. It's not what this company deserves, and it's not what these brands stand for," he told reporters and financial analysts, pledging to restore results over a three-year rebuilding phase. "I will work 24/7 with this management team to make that happen so that the numbers we present today hopefully represent somewhat of a turning point."

Next month, as part of a broad reorganization, he will take charge of the vans unit at a board level and Wilhelm will act as CFO of Mercedes-Benz, as well as the parent company. Daimler also appointed Markus Schäfer to the newly created post of operations chief.

When Källenius became the first nonnative German to run the world's oldest automaker, he presented a plan to decarbonize the entire Mercedes fleet over the next two decades, tying a portion of management's variable compensation to sustainability milestones.

His strategy could have been torn from the pages of Volkswagen Group and its efforts to reinvent itself after the global diesel scandal. Under CEO Herbert Diess, Europe's biggest automaker has plotted a course to transform its entire combustion-engine fleet to electric drivetrains, roll out purpose-built EV architectures, switch factories to run on regenerative electricity, eliminate carbon emissions along the value chain via supplier audits and even develop its own software operating system for the car.

The only major difference is that Källenius is keeping full control over his industry-leading commercial trucks division, while VW floated roughly 10 percent of Traton on the stock market last summer.

But the road to an electrified future may be bumpy.

Källenius' first major project when he was development chief, the Mercedes EQC electric crossover, has been marred by production troubles.

After blaming the difficulties on a lower-tier supplier that failed to deliver components to specification, Källenius said the issue was resolved after vehicles were retrofitted with new parts.

But only 623 have been registered in Germany since the launch last spring, compared with 828 Jaguar I-Paces and 3,110 Audi e-trons over the same 10 months.

"They've gone nowhere so far when it comes to electromobility," said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach. "And that is a massive problem."

It's one Källenius is well aware of — and one he has pledged to fix: "This company is going to change fundamentally," he said.