Mercedes-Benz CEO On Going All Electric

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Mercedes-Benz CEO On Going All Electric
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Following is the unofficial transcript of a CNBC interview with Mercedes-Benz CEO Ola Källenius at CNBC’s ESG Impact conference, which took place today, Thursday, October 6th. Video from the interview will be available at cnbc.com/esg-impact-events/.

Interview With Mercedes-Benz CEO Ola Källenius

JIM CRAMER: Ola, this is one of the most major announcements I’ve ever heard in terms of the environment, in terms of your company, and you are 136-year-old startup. Tell us about this.

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OLA KÄLLENIUS: Jim, great to be with you today. When we made up our mind a few years back to go what we call for Ambition 2039, we really first mentally flicked the switch to go all in on decarbonisation, Ambition 2039 is all about taking CO2 out of everything we do, the obvious thing is going electric on the product.

But it's more than that. It's the whole value chain, working with our suppliers to decarbonize, of course, turn our own production and operations CO2 neutral, but also make sure that the product in use that the electricity that is used for them driving the future electric Mercedes comes from a CO2 free source, and to do this 10 years ahead of the Paris Agreement, hence, Ambition 2039.

CRAMER: But Ola, the one thing I know is that you had the best engines, the best cars, but they’re internal combustion and you have fantastic people working on internal combustion, will you get their buy in to go electric?

KÄLLENIUS: Well, in fact, our founding fathers, Gottlieb Daimler and Carl Benz were the first guys that came up with the idea to put a combustion engine into back then a horse carriage, and they invented the automobile and that technology has served us well for those 130 plus years. But we've all realized that climate change is real.

The CO2 problem needs to be solved and where does that problem end, it ends on the desk of our engineers. So it is obvious that going towards the CO2 free future, we got to switch energy source, and thereby using then electric motors is the natural choice for the vehicle of the future even though high-tech electrified combustion engines will coexist with the electric vehicles for several years to come.

CRAMER: Now, at the same time, you've really done remarkable things with this company, you you've broken it up basically and if someone wants to own the stock of Mercedes-Benz, what they're getting is a company that is now the leader in going, let's say fossil free, but also has had a history of having the most successful cars.

This is a dramatic change and why did it happen? I mean, I remember how exciting it was when Chrysler got together with you guys, I guess it just wasn't a perfect marriage.

KÄLLENIUS: It is indeed a big change and when we talk to our shareholders, they now have a choice. They can either own a stock, which is the perfect blend between tech and luxury, that's Mercedes-Benz, beautiful cars with innovation, high tech, but timeless luxury to go with it.

Or they can invest in Daimler Trucks, the leading commercial vehicle producer worldwide. Those two industries are fundamentally different.

The customer profiles are different. So we said that about a year ago, now is the time to focus our strategy, and let both these companies develop their future on their own. So that's why we spun off Daimler Trucks and put it on the stock exchange.

CRAMER: Now, these are all premier great nameplates. But at the same time, anyone who's in this business has specific challenges. For instance, one of the things that Elon Musk is always talking about batteries, hard to find lithium.

There's also major issues with semiconductors. It's not the easiest time to go all electric. Will these let's say seemingly small things actually delay your plans because that's what's been happening in America.

KÄLLENIUS: This decade is the decade of change for the automobile industry and it is our goal for Mercedes-Benz to put ourselves in a position as one of the leading auto manufacturers to be able to go all electric for markets that are ready by the end of this decade.

So turn the whole industrial apparatus into electrification in less than 10 years time. What do we need to do that? Yes, you're right, we need to look at the raw materials, lithium, nickel, other raw materials that we need for battery cell manufacturing.

But also as the product gets more and more digital, supercomputing coming into the car, better sensing technology, artificial intelligence driven algorithms that makes the car smarter and, and safer.

We have to progress on all those fronts and of course, we're now working all the way down to the mining and refining level with suppliers to make sure that we get the materials that we need.

It's not that there's not enough out there, but will the speed of building up mining capacity and refining capacity, especially on lithium, maybe nickel, will it be fast enough? It's something that we're working on.

CRAMER: Do you think that your average customer is focused on going electric or average customer focused on Mercedes-Benz being the best regardless of what it is?

KÄLLENIUS: Well, if you get a Mercedes-Benz, you still want to go from A to B. But in our case, you want to go from A to B in style. So, it's all about that experience and have the latest and greatest and best technology but blend it with, you know, timeless luxury that just makes the product feel right.

And now step by step, we see the market turning and I really believe that in this decade, we will flip from being based upon high tech combustion, combustion, internal combustion engines to going dominant electric, if not all electric, in the luxury segment by the end of the decade.

And as long as you give the customer a superior product to what they had before, they're open minded for switch.

CRAMER: Well, let's talk about that. Are there any EQS’, EQEs and EQBs available in United States? My understanding is sell, sold out, impossible to get, give us some direction about whether we can get anything electric right now for Mercedes-Benz.

KÄLLENIUS: It is true that the products that we have launched recently and the ones that we have in the pipeline have received tremendous feedback from from the customers, from our dealers. And yes, pretty much everything is sold out.

But we're working on that. We're just about to launch literally this week the new flagship SUV, the EQS SUV, so the sibling car to the EQS sedan, which is going to be built in our operations in the United States. So another one is coming into the market now and we're ramping up production as fast as we can and I think maybe it's a good problem to have.

CRAMER: Now, any worries that the system that our country at least is not set up. We have a tremendous number of charging stations in the East and the West but in the middle of the country, we are still adrift, there are people who just have not evolved. I'm not sure what situation it is in Germany, but can you get all over Europe, and all over United States you think with with your cars?

KÄLLENIUS: Step by step you can, as a matter of fact, this past weekend, I went down to the Alps, driving from Southern Germany to Austria and back and had no problem finding a charging station once I got to the destination I was going to.

So even if it's early days, you can see how charging infrastructure is growing fast and we are making investments primarily here in Europe to build up a charging network along the highways for fast charging, and also looking at projects in the United States, as are many other players.

So even though the infrastructure is not there yet, we can see a lot of movement on part of many market actors that will change this equation in the next five to 10 years and we're going to be one of those that will make this market.

CRAMER: Now your cars you've been talking about are basically these technological machines. I mean, you've got this amazing structure to be able to be EV. I know you've also worked with NVIDIA for a long time, this is an autonomous drive. I mean, these are cell phones on wheels so to speak.

KÄLLENIUS: It's more than that. It's a supercomputer with very sophisticated sensing married to software architectures based upon artificial intelligence, that in essence, will be able to make better decisions than we humans can make it in the future.

And yes, for the next generation autonomous drive, we are working together with NVIDIA to put the best technology into our future cars and literally every Mercedes will be a smart vehicle.

CRAMER: Now, when I look at what you're up to, I say to myself that you guys are so far ahead of everybody else but I still question whether you say your grid in in Europe, I'm reading about all the crises you have that maybe you're so far ahead, but the problems the near-term problems in Europe with Russia could make it so that things don't work out as well as we all want.

KÄLLENIUS: There is definitely an energy challenge in Europe as a result of the terrible war in the Ukraine. And maybe this has been a wakeup call for Europe and also for Germany in particular to diversify in terms of energy security so in the next two to three years, maybe four. Of course, this is a challenge, but I see a potential silver lining here.

Maybe this will also be a catalyst for speeding up the process going to alternative energy sources, CO2 free energy sources. In fact, we as a company announced only a couple of weeks ago that we're going to invest in a massive wind park in northern Germany where the wind pressure is pretty good.

That one investment will cover up to 15% of our electricity needs in Germany alone. So maybe if we take this into a mid to longer term perspective, that this very unpleasant wakeup call could give us a strategic advantage in 2030 or beyond.

CRAMER: Well, I want to take us a little more philosophical. I am a huge believer that business, not government, but business is the greatest force for social change.

You are so far ahead of the Paris, of course, you are so far ahead of what governments want. It just seems like private industry should be saluted a little bit more in the sense that you don't have to do this. You're doing this because you think it's right.

KÄLLENIUS: We do it because we think it's right but we also do it because we think it's going to be the better business. I don't think there's any question for a modern company, a forward-thinking modern company that we need to decarbonize.

In fact, when I speak to our most important investors, whether they're European investors or American investors, they're telling us go as fast as you can and that's what we're trying to do.

The policymakers, they set the framework, but then let the market do, let the market do the magic. We certainly have made up our minds and I think that capital markets are going to put more pressure towards decarbonization than maybe some politicians in some countries.

CRAMER: What's the difference between the people who work at Mercedes-Benz in the United States, which seems a little bit less forward when it comes to the environment. Typically, we have whole government that was in climate change denial versus Europe where is all into recognizing that climate change is very real.

KÄLLENIUS: On the ground, that that is actually not true. We build our vehicles, our SUVs, in United States in the state of Alabama. In fact, I've lived myself there for six years and we're now together with Alabama Power building one of the biggest solar parks in the state that will serve our operations only a couple of hours away from where that is being built.

So we might even go CO2 neutral in the United States in Alabama quicker than we make it in Germany. So on the ground, there is no difference. We have made up our minds around the world, whether it's Europe, United States, China, or anywhere else where we do business.

CRAMER: Well, I did not know that, frankly, because I think that there's a perception in this country that other than Tesla, these don't sell that well. I know that Ford has a substantial division, but they also have a huge internal combustion.

And there are companies in our country that lag because they're afraid that they'll lose core customers, that one internal combustion. Can you tell people right now about the performance stats of internal combustion versus EV, and how EV frankly is exactly what you want if you want to power a car?

KÄLLENIUS: Well, the high tech electrified internal combustion engines that we offer, of course, they will be in the market for many years to come. But the future is zero emission, and it is electric.

So whether you choose an S-Class with electrified combustion engine or a plug in hybrid, or you choose the EQS, both are good choices. But if I fast forward to 2030 or beyond 2030, I strongly believe that especially in the luxury segment, we're going to be dominant electric, if not all electric, that's where the future lies.

And the the experience for the customer in terms of the torque, the performance, everything is is fantastic, and drive the EQS and you will see how quiet it is. It's a dream.

CRAMER: Okay, one last question. I myself and we are on “Mad Money” are very concerned about worldwide economies. You're bringing this to market right now. You're talking about it right now at a time when Europe could be in a very bad recession.

We have the Federal Reserve in this country trying to make it so that we all spend less. What do you do with the fact that the governments around the world have not been able to control the economic situation, but you're offering a very expensive vehicle, albeit one that is EV, is the environment right to bring what you want to bring?

KÄLLENIUS: We have always experienced economic cycles with stronger economies and also, perhaps cooler economies. And needless to say, with the interest rate hikes and what's going on in the world right now, one has to be prudent and maybe 2023 will be a slightly cooler environment than we have experienced up until now.

But that that shouldn't change your overall plan to invest in the future. So we're not going to we're not going to stop investing. In fact, we're investing on the highest level ever in the in the company history for those future technologies, electrification, and digitization.

And at the same time, you got to work on efficiency, control your fixed cost, make sure that you're ready for an economy that maybe is a little bit weaker, so that you can also navigate through tougher times. I think that is, is something that every company needs to do.

CRAMER: Well Ola I want to thank you so much for being a visionary that can inspire as I say, business is the greatest source of social change and what you're doing is a social change that I think the world needs very much. Ola Källenius, CEO of Mercedes-Benz, thank you so much, sir.

KÄLLENIUS: Thank you Jim for having me.

Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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