Ola Källenius on Mercedes e-strategy, transformation, and China: more running still to do
If the road to an all-electric future is a marathon, then Mercedes-Benz has completed a solid first few kilometers of that marathon, says CEO Ola Källenius.
“But still only the first few kilometers. The bulk of the marathon is ahead of us, so we have a lot of running still to do,” Källenius told me in an interview on October 17 at the Musée Rodin, where the EQE SUV as well as an AMG version of it made their global debut the previous evening ahead of the Paris Motor Show.
It was my first-time meeting Källenius in person in nearly three years. The last time I met him was at the Guangzhou Auto Show in November 2019, where he was the only CEO of a major global automaker attending and brought the Vision EQS for its China debut. At the time, he had only been on the job for six months, having succeeded Dr. Dieter Zetsche earlier that year.
Fast forward three years, the world has changed, the auto industry has changed, and Mercedes-Benz has certainly changed, having split from what was previously known as Daimler and updated its strategy several times since the pandemic. In a matter of months from 2020 to 2021, the brand with the three-pointed star elevated its strategic ambition from “electric first” to “electric only” — going all electric by 2030, but with a caveat: where market conditions allow.
The EQE SUV is the eighth and final model in this phase of the EQ family offensive (following the EQA, EQB, EQC, EQE, EQS, EQS SUV and EQV), which really began six years earlier at the 2016 Paris Motor Show, when Mercedes-Benz announced the EQ sub-brand, EQ strategy and C.A.S.E. I’ve been fortunate enough to personally witness that pivotal moment, which was the last time I was in Paris, as well as the global debuts of the EQC in Stockholm in 2018 and the Vision EQS previewing the EQS in Frankfurt in 2019.
During those six years, Källenius’ roles have changed from sales & marketing to R&D and finally to CEO, getting the unenviable task of spearheading the transformation of one of the most valuable automotive brands in the world. It hasn’t been smooth sailing, to say the least. The world is divided more than ever, there is a raging war that has exacerbated the supply chain disruptions that have already dogged the industry for the past three years, so has the pandemic and especially COVID control measures in China, where Mercedes is facing cutthroat competition in EVs, and premium brands no longer enjoy the dominance they once had in that segment of the market thanks to emerging smart EV startups like NIO.
And despite having nearly doubled BEV sales globally in Q3 to more than 37,000 units, with year-to-date sales up 65% to over 95,000 units, the performance of the EQ family has been below expectations and that is certainly the case in China where Mercedes and the legacy premium brands are the laggards when it comes to EV sales. (Mercedes cut prices of the EQE and EQS models in China on November 15 by as much as RMB200,000 or $33,000)
Through all of this, Källenius has had to also accelerate the digitalization (think software and connectivity) of the Mercedes brand and do so profitably, while balance delicate relationships with tech company frenemies like Apple.
So I asked Källenius about this journey of transformation so far, whether Apple is a friend or a foe, the geopolitical climate, and navigating for future success in China, the biggest market for Mercedes and the biggest EV market in the world.
That solid first few kilometers that Källenius referred to is also what he calls the first phase of electrification of the Mercedes brand, which is mainly carried by the current EQ family based on the EVA2 platform, the first dedicated electric platform. That has taken Mercedes from being dominant high-tech combustion-based to having a solid foundation of electric vehicles leading up to mid-decade.
“But if we want to go all the way and really be serious about it, we got to expand our footprint,” he said. “So all the new architectures, to start with on the entry side with what we call MMA, following that one year later with MB.EA where we cover kind of the C-Class, GLC segment, eventually go all the way towards the end of the decade, laying a foundation up until 2025, but then massively accelerating between 2025 and 2030 so that we can put ourselves in a position for markets that are ready by 2030, to even go all-electric in some of those markets.”
Källenius says the transformation the whole industry is currently undergoing is going to turn it upside down in 10 years’ time, and it will not look the same, nor will Mercedes look the same. Besides the overriding technical trends such as electrification and digitalization of both the vehicle and the enterprise that’s driving the transformation, another side to the Mercedes strategy is focusing on who it is, and what the brand promise is all about.
“In that context, you have to be very clear about where you want to play. And we need to play where Mercedes’ home is, which has always been modern luxury,” said Källenius. “So let Mercedes be Mercedes, don’t try to be a volume producer, don’t go in and grow at the bottom end because it would slightly dilute the brand and maybe create some brand confusion.”
He believes that the upper end of the segments that Mercedes is in are the ones that are economically more resilient, and the higher up that pyramid, the higher the relative level of profitability.
“So brand promise, economic resilience, where we think we can win, where we think we have the best growth opportunity, what we think will pay for the expensive technology that we’re going to put into the vehicles. It all fits together,” he said. “It’s almost like taking a step back, doing some soul searching, looking at who you are and combine a thrust into innovation and technology with that heart of the Mercedes brand. That’s the inspiration.”
Regarding Apple, Källenius says that Mercedes needed to control its own destiny: to fundamentally be its own architect of its digital future, with its own MB.OS software stack and the corresponding hardware, starting with a white sheet of paper redefining the overall electric/electronic architecture of the vehicle, but also the digital architecture of the whole ecosystem, which is car and cloud, unique customer ID facing the customer, putting Mercedes at the center of this whole digital framework. But it’s not a closed thing where Mercedes is going to do everything itself and create its own island with no bridges.
“You have to build bridges to the tech companies, because customers are going to want to have things in their car that they have from their smartphone ecosystem. And that goes for the western world as well as for China,” he said. “So you have to have an attitude, almost like an open source type of attitude. But you don’t hand over the role of the architect to somebody else, and you don’t hand over the role of being the ultimate interface to the customer to somebody else. You need to have your one-to-one relationship through an ID with your customer. So that is the essence of our digital strategy. As a part of that then, we then seek out partnerships.”
The collaboration announced with Apple Music, Universal Music Group and Dolby Atmos in conjunction with the EQE SUV reveal is one example of those type of partnerships. “So we collect partnerships, win-win partnerships,” said Källenius. “But we’re not going to go and say, here is our cockpit, please tech company A, B, or C take it and do whatever you want with it, that we won’t do.”
And being in China, where there is so much innovation dynamism in the auto sector, it means working with a different set of partners and developing for local customers local solutions which may also find their way into other global markets.
“China has its own tech platform companies. But it goes so much further than just tech platform companies that you need to have as partners to create the use cases that the customer expects from you,” said Källenius. “It’s a myriad of other automotive and non-automotive, innovative, entrepreneurial led started companies that we work with in China for China, but in China for the world as well.”
Mercedes recently celebrated the one-year anniversary of its RMB1.1 billion Technical Center China (TCC) in Beijing and is continuing to hire “like crazy at the moment,” according to Källenius. “We are massively beefing up our effort in China. We have set up a satellite also in Shanghai because of the ecosystem that is in and around Shanghai,” he said. “You can be a European and be successful in China and understand what’s going on there. But I tend to believe that somebody who knows China even better is probably somebody who’s Chinese. That is why also our technical effort and also in terms of our team is growing in terms of also being Chinese.”
In fact, one of the most prominent hires Mercedes has made happened earlier this year, when it appointed industry veteran Paul Gao as the company’s chief strategy officer. Having previously worked in China at McKinsey for over two decades focused on the automotive sector, Gao has become the highest profile Asian C-suite executive ever hired by a major global automaker.
The efforts of localization and better addressing Chinese customer needs have paid off, according to Källenius. Over the last 12 months or so, Mercedes made changes to the digital interface of its products in China with local partners in the area such as navigation and voice, resulting in user rates going up for specific features.
“So in China, we will build our digital cockpit or digital ecosystem gradually. It’s pretty good now, but it feels like we have just gotten started.”
Commenting on the geopolitical climate and protectionist policies that are happening in some economical regions also vis-à-vis China, Källenius’ message was this: people should be reminded of how the economic success of the last 30 years or so came about.
“It is a combination between opening markets up, free trade, WTO-driven, combined with entrepreneurship. So it’s both of those things that have acted in consort. We have been very great benefactors from that,” he said. “So we are fundamental believers in a rule-based, level playing field, global world trade-driven agenda. It is win-win for everybody.”
Källenius also stressed that Germany does not seek any type of decoupling, as was the message given by German Chancellor Olaf Scholz during his official visit to China on November 4.
“What the Germany and EU seeks in my understanding is level playing field, so that there are no direct or even hidden barriers to doing business. And that goes for the relationship with China, as well as any other big economic region, United States, North America, or any other region in the world. That’s the voice that we make heard,” he said. “And we will continue as a multinational company to act in a global manner. We will continue investing in China. It’s our most important market. We think that there’s great potential there. We’re increasing our footprint 360°.”
Over the next 3–5 years, Mercedes plans to invest in technology, customer experience, digital vehicle and assisted driving in China, but also paying attention to what makes a real Mercedes a Mercedes.
“So keep that luxury dimension and transport it into an EV era, that is our task for the next years,’ he said.
Asked about the strong performance of China’s NEV market this year despite various disruptions, Källenius said he wasn’t surprised.
“Time and time again throughout history, when you have one technology that is about to overtake another technology, it usually happens faster than you think,” he said. “Maybe that’s what we’re seeing now.”
