Time to start penny pinching

Emissions regulations are getting stronger by the year and governments of the world are pushing electric vehicles hard with various tax breaks and incentives. But, researching, developing, and creating EV architecture and technology isn’t only hard, it’s expensive. Companies like Daimler AG, the parent company of Mercedes-Benz, is feeling the burn as money hemorrhages from every orifice as it struggles to develop and bring its EQ sub-brand into reality. According to Bloomberg, CEO Dieter Zetsche has said that Mercedes is “fighting” to bring its capital and R&D spending down to its pre-2014 average of around $13.2 billion.

Most automakers are spending money like crazy for research and development right now as automakers continue to tackle increasing stringent emissions regulations and develop the next generation of electric and autonomous vehicles. Like BMW, Daimler expects electric cars to make up 25 percent of deliveries by 2025, which is part of the reason why Mercedes is planning 10 models for its EQ sub-brand. The problem is that Daimler as spent excessive amounts of money in the past couple of years, shelling out nearly $13 billion in 2015 and nearly $15.5 billion so far in 2016. That’s up from roughly $11.5 billion in 2013 and $11.6 billion in 2014.

Zetsche said, “The range of investments is an extreme challenge. We cannot stop advancing combustion engine technology, even if 25 percent of vehicles sold in 2025 are e-cars, as 75 percent won’t be.” And, that’s true – at least for now, anyway. Even with the advancement of battery technology and the increasing popularity of EVs, the ICE will still be around for some time to come and, to stay in the game, manufacturers need to continue developing and fine tuning the fuel drinkers as well. But, in order to ensure future profitability, Daimler’s car division must stick to a target return of 10 percent.

Keep reading for the rest of the story.

Why it Matters

We’re at a very interesting turning point in the automotive world right now. Automakers aren’t just working on advancing one technology, but three at the same time. First off, automakers must continue to invest in the ICE to maintain compliance with emissions regulations that seem to get worse by the year. Then, there’s a massive push for autonomous technology that also has automakers dumping out money left and right to go along with all the money being shelled out to develop EV technology. That’s a lot to juggle, and there’s money going out in every direction imaginable. The effects can already be seen as automakers switch to modular platforms that can be shared among companies under the same umbrella to go with small displacement, turbocharged engines that bring similar power and increased fuel economy over their naturally aspirated counterparts. According to Zetsche, Mercedes is “well on track” for earnings growth this year as sales have climbed by 12 percent in the past nine months. The question is, can Mercedes continue to keep while cutting its spending so drastically? Only time will tell.

Read our full review on the 2016 Mercedes-Benz "Generation EQ" Concept here.

Source: Bloomberg

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