Mercedes-Benz has acknowledged that its electrification goals were overly ambitious and is now making a substantial shift in strategy. The company is investing heavily in combustion engine technology while also advancing electrification and digitalization efforts. In an interview with the German publication Wirtschaftswoche, CEO Ola Källenius emphasized that ICE technology “will last well into the 2030s,” necessitating significant investments to meet stringent emission regulations.
Massive Investment in Technology
This year alone, Mercedes-Benz is spending €14 billion (approximately $15 billion) on its passenger car division, surpassing previous spending plans. These funds are earmarked for “high-tech combustion technology,” as well as electrification and digitalization. Although Källenius did not specify the exact amount allocated to ICE technology development, he confirmed that it is “more money than previously planned.”
Focus on the S-Class
A substantial portion of this investment is directed towards the S-Class and its mid-cycle update scheduled for 2026. Källenius revealed that Mercedes has invested significantly more in the new combustion engine S-Class model update than it typically does for a facelift. This investment aims to ensure that the conventional powertrains achieve “the very highest technological level,” allowing Mercedes to continue its combustion engine business well into the 2030s despite stricter Euro 7 and China 7 regulations. The company aims to tweak all “relevant combustion engines and transmission combinations” to meet these emissions standards and avoid massive fines.
Adapting to Market Realities
Mercedes-Benz’s adjustment comes after realizing that its transition to EVs is not proceeding as planned. Initially, the company projected that plug-in hybrids and fully electric cars would make up about 50 percent of annual sales by 2025. However, this target now seems unlikely. At one point, Mercedes even announced plans to go fully electric by 2030 in certain markets “where market conditions allow.” Facing the reality of market dynamics, Mercedes has revised its goals, now aiming for hybrids and electric cars to account for half of its deliveries by the end of the decade. Despite these adjustments, the ultimate objective of becoming carbon neutral by 2040 remains unchanged.
Continued EV and Hybrid Development
Källenius refuted rumors about canceling the development of the next-generation EQS platform, confirming that “the project is running at high speed.” Additionally, Mercedes is not abandoning its plans for eight gigafactories to produce batteries, although the timeline for these facilities has been slightly delayed.
Earlier this year, reports surfaced about Mercedes testing its EQS electric car with a range-extending combustion engine, featuring a tiny two-cylinder, 1.0-liter turbocharged engine. However, these trials were reportedly halted.
Mercedes-Benz is also collaborating with Geely on hybrid engines for Volvo models, leveraging Geely’s expertise in range extenders. The newly formed Horse division, specializing in combustion engines, includes those developed as range extenders.
