Mercedes joins Tesla, VW in race to sell small electric cars

Christoph Rauwald

Mercedes-Benz is taking on one of the most complex industry challenges with the rollout of its battery-powered EQA: selling small electric cars without a big profit squeeze.

The brand’s first fully electric compact model will hit European showrooms this spring, flanking the mid-size EQC sport-utility vehicle and the EQV van, the Daimler AG unit said Wednesday. Prices in Germany start at 47,541 euros ($57,734) and the vehicle offers 302 miles of range.

In this Friday, June 26, 2020 photo sunlight is reflected in a 'Mercedes Benz' logo twirls on top of an office building in Berlin, Germany.

Unlike Tesla Inc.’s Model 3 or Volkswagen AG’s ID.3, the EQA is based on technology from an existing combustion-engine car, which is also available as plug-in hybrid. The German manufacturer modified the underpinnings of its GLA crossover to reduce upfront investment and save time compared to building an all-electric vehicle from scratch. It’s a trade-off that often comes at the expense of driving distance and production-cost efficiencies.

The first generation of Mercedes’s lower-priced electric cars likely will drag on profitability until the company develops EV-specific underpinnings and battery prices drop further, said Michael Dean, a Bloomberg Intelligence analyst. Still, the company’s mass-market EV push will help it meet emissions rules in Europe and China, he said.

While the first Mercedes based on dedicated EV technology – the electric sibling of the full-size S-Class sedan – will be introduced later this year, a separate platform that will make producing small and mid-size battery-powered models more efficient is roughly four years away.

The world’s biggest luxury-car maker has little time to waste when it comes to bolstering its EV offerings. Surging demand for plug-in hybrids helped Daimler meet Europe’s CO2 targets in 2020, but it’s unclear how long subsidies for vehicles relying partially on combustion engines will last.

Rival Factory

Elon Musk has signaled Tesla might add production of a hatchback for Europe to the planned Model Y output at its factory under construction near Berlin, which would further up the pressure on domestic manufacturers.

Daimler Chief Executive Officer Ola Kallenius has pledged to focus more on larger luxury cars like the S-Class and GLS SUV to generate the funds needed for the electric-car shift. The EQA is targeted primarily toward young, urban customers and will be flanked by an allwheel drive version, Mercedes said. It will also introduce a version with a battery range of more than 500 kilometers.

“For the first time we are offering our customers an all-electric Mercedes in the compact segment with an extensive range that ensures its viability in everyday use,” Mercedes sales chief Britta Seeger said in a statement. “The new EQA is an important vehicle along our path toward the electrification of all our vehicle segments.”

While it might take Mercedes until 2024 or 2025 to make competitive mass-market EVs, the manufacturer likely will enjoy “continued positive earnings momentum” as sales of the new S-Class kick in, UBS Group AG analysts led by Patrick Hummel said in a note last week.