Daimler has set a new target of saving 4 billion euros ($4.8 billion) by 2025 to help offset the lower profitability of electric cars, which at first may only earn half the margin of equivalent vehicles with combustion engines.
The company's Mercedes-Benz brand is preparing to launch the "EQ" electric car, which shares the underpinnings of the Mercedes-Benz GLC, a model that sells at a rate of around 1,000 cars a day. If the EQ proves popular, profits could take a hit initially, Daimler said at an investor say on Monday.
"In the beginning of the cycle we believe that we will have to face a significantly lower margin.
For some vehicles half of the margin of the vehicles they replace," Frank Lindenberg, Vice President of Finance and Controlling at Mercedes-Benz Cars, said at the event in Sindelfingen, southwest Germany.
Daimler will produce the GLC and the EQ at the same plant, allowing it to adjust production of electric cars in line with demand. A rapid switch to electric cars may prevent it from meeting its return on sales target, Lindenberg said.
"We are still aiming for a 10 percent return on sales, but have to be prepared for a kind of transition, with a corridor of 8 to 10 percent," he said.
As part of the cost savings plan, Daimler wants to save 1 billion euros from fixed costs, and another billion from research and development and capital expenditure. The remainder would come mainly from product costs.
Daimler said that by 2025, the purchasing cost of electric cars would likely reach parity with combustion equivalents, which could accelerate migration to battery powered vehicles.
Electric cars are currently more expensive than combustion-engined cars because of battery costs.
One way for Daimler to lower costs would be to purchase a larger proportion of electric components from suppliers rather than making substantial parts of the car in-house, Chief Executive Dieter Zetsche said.
"Our vertical integration could be reduced significantly," he said.
"In-house production is almost irrelevant to the customer," he added, noting many compact Mercedes models were sold with Renault engines, without prompting complaints.
Mercedes still builds a large part of its gearboxes and engines in house.
By 2022, Mercedes plans to offer an electric version of every model it sells, with a total of at least 50 electric or hybrid models for sale. The Smart brand will stop offering combustion engined variants altogether in 2020.
One way to boost profits of electric cars in future could be to charge handsomely for autonomous driving functions that are increasingly being introduced as the technology advances.
"You will be able to also one day have a computer chauffeur," head of research and development Ola Kaellenius forecast.