The fact that the large German car makers are finding it difficult to make large investments in electric car technology became evident as Mercedes-Benz said that it plans to save €1.65bn through retrenchment of more than a thousand jobs in its various locations.
All of the major global auto companies are under pressure because of a slowdown globally in the sale of cars powered by internal combustion engines because of economic weakness and scandals over emissions but at the same time they are being forced to make heavy investments in billions for the development of battery-powered electric vehicles to keep pace with changing consumer tastes and stricter emission norms.
The bulk of the job cuts will be borne by the premium cars division of Mercedes-Benz, said the car maker’s parent company, Daimler, on Thursday. The company said that it expects to make cost savings of up to €1bn from its wage by 2022. The company said that there would be particular impact on the management and contractors while €650m in staff and other costs is expected to be saved by the vans and trucks divisions together.
All investments in property, plant and equipment and in research and development would be capped by Daimler at their current levels, said the company, and has drawn up plans to bring down the investment further in the medium term.
Global car makers are facing a crucial time when they are shifting away from dependency on fossil fuels towards greener alternatives because new strict rules and regulations on carbon dioxide emissions is set to come into force starting January 1. According to the new regulations, if the average emissions of cars sold in the EU are above 95g of CO2 per kilometer, there will be heavy fines for car manufacturers.
“The expenditure needed to achieve the CO2 targets requires comprehensive measures to increase efficiency in all areas of our company. This also includes streamlining our processes and structures. This will have a negative impact on our earnings in 2020 and 2021. To remain successful in the future, we must therefore act now and significantly increase our financial strength,” said Ola Källenius, the chair of Daimler’s board.
This news resulted in a drop of 3 per cent in the shares of Daimler at €51.97.
In 2018, the company reported earnings before tax of €10.6bn. However the company has issued a renewed profit warning for 2019 and according to average estimates from S&P Global Market Intelligence, the earnings before tax for the company for 2019 would come to about €6.3bn.
In addition to the costs that the company has to face because of need to invest in electrification, Daimler also is faced with the prospect of incurring more legal costs related to the alleged breaches of emissions regulations. The rival German carmaker Volkswagen has also been dented by the scandal over diesel emissions cheating technology scandal.
(Adapted from TheGuardian.com)