April 20, 2024

Mercedes Pulls Back Plan To Phase Out Gas-Powered Cars Amid Low EV Demand

Mercedes-Benz recently announced it would be reevaluating plans to sell only electric vehicles by 2030 amid slower-than-expected consumer adoption.  The news starkly contrasts the sentiment the German automaker expressed just a couple of years ago, seeking to completely phase out gasoline-powered cars by the end of the decade.

According to Mercedes’ fourth-quarter earnings announcement, the company is seeking to better accommodate consumer and market preferences related to EVs.  “Customers and market conditions will set the pace of the transformation,” Mercedes said. “The company plans to be in a position to cater to different customer needs, whether it’s an all-electric drivetrain or an electrified combustion engine, until well into the 2030s.”

The quarterly earnings report also pointed out several other geopolitical factors that could influence the company’s financial performance, such as the Russia-Ukraine war and the ongoing conflict in the Middle East.  Additionally, China-U.S. relations could worsen, impacting Europe by extension.

“The economic situation and automotive markets continue to be characterized by an exceptional degree of uncertainty. Unexpected developments may arise in particular from geopolitical events and trade policy. Among them are the current Middle East conflict, the Russia-Ukraine war, and other regional crises. Other potential uncertainties include the exacerbation of tensions between China and the United States and a further deterioration of political relations between the European Union and China,” the report read.

Mercedes also noted several macroeconomic concerns, including global supply chain disruptions, continual inflation, and higher interest rates.  All of these factors are likely to have a substantial impact on the automobile market.

“Further supply chain disruptions and in particular, availability bottlenecks for critical components, remain a significant risk factor. These may impact supply chains and the development of prices for raw materials and energy. In addition, higher-than-expected inflation and interest rates, potential financial market disruptions and an even more pronounced slowdown in economic growth, may have an impact on the world economy and automotive markets,” Mercedes stated.

Mercedes-Benz CEO Ola Kaellenius recently commented on the EV sales goal at the Munich Car show, explaining that his company hitting the target is contingent on consumer-driven market dynamics.  The chief executive further called for improvements in EV infrastructure to help drive greater consumer adoption.
“It’s not going to be 100% in 2030, obviously… from the whole European market, but probably from the Mercedes side as well,” he said.  “We will be ready … but we will also have tactical flexibility,” he said, referring to the ability to produce electric or combustion-engine vehicles on the same production line.

Mercedes’ EV pullback is representative of broader struggles across the EV industry.  The American Tribune recently reported on disappointing earnings from EV automakers Rivian and Lucid, which caused their respective share prices to plummet.

“Our business is not immune to existing economic and geopolitical uncertainties, most notably the impact of historically high interest rates, which has negatively impacted demand,” Rivian CEO RJ Scaringe stated in the company’s quarterly earnings call with investors.  Lucid CEO Peter Rawlinson offered similar sentiment, particularly calling out the impact of the high interest rate environment.

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