Daimler declines to invest in battery cell production

The Mercedes B 250 e uses a drivetrain supplied by Tesla.

FRANKFURT -- Burned by past experience, Daimler CEO Dieter Zetsche ruled out investing in battery cell production for electric cars with other German premium brands for at least another few years citing a massive overcapacity in the market that has turned cells into a commodity.

"The dumbest thing we could do is to add to that overcapacity," Zetsche said earlier this month in Stuttgart.

"Contrary to the expectation four or six years ago when everyone thought that the cells would be a rarity that could even be used as a tool of industrial policy, there is de facto a massive overcapacity in the market today and cells have become a commodity," he said.

The idea of joint production became politically sensitive in Germany after Economics Minister Sigmar Gabriel said in November that Tesla founder Elon Musk had approached the government to discuss state subsidies for building a battery plant in the country.

Supporters, including domestic labor unions, have argued that a "German Battery, Inc." could achieve the necessary scale effects in cell production to make electric cars more affordable while simultaneously ensuring that strategically important expertise remains in the country’s vaunted automotive cluster.

Currently cells used in plug-in hybrid models including the Audi A3 e-tron or BMW i3 battery-electric car come largely from Asia, in these two cases from Panasonic and Samsung SDI, respectively.

Daimler's electric Mercedes-Benz B 250 e model sources its entire drivetrain from Tesla, while the cells for its previous-generation Smart ForTwo Electric Drive came from its now defunct production facility in eastern Germany. Daimler now no longer communicates which suppliers produce cells for its current plug-in hybrids because, it says, these providers are "interchangeable."

Mercedes, BMW and Audi have already proven that despite their fierce rivalry they can forge strategic alliances to improve Germany's competitiveness in the industry. Last year the three automakers banded together to acquire Nokia's high resolution digital mapping unit HERE for 2.8 billion euros.

So when Audi CEO Rupert Stadler had expressed interest in September in pooling resources to produce cells domestically, Zetsche initially said he was open to the idea.

Mercedes development chief Thomas Weber, who retires at the end of this year, followed up in December by saying "it could make sense to join forces here," while Daimler's own Deputy Chairman and senior labor leader, Michael Brecht, has pushed the company "not to leave cell production entirely to the Asians."

Zetsche was forced to shut down the company's own lithium ion cell production this past December, where Daimler’s former Li-Tec unit produced a special type of cell designed to prevent the kind of overheating that saw some electric vehicles catch on fire.

"We had the best cell, which no customer could feel because the differences are minimal, but we had far too high costs," the Daimler CEO acknowledged this month. With only very negligent volumes of Smart ForTwo Electric Drive cars on which to rely, the plant could never reach the volumes needed to be justify its business case.

Until it is clear which competing cell chemistry wins the race to double energy density while at the same time lowering manufacturing cost, Zetsche is not interested in placing any bet. Currently lithium-air, lithium-sulfur and solid state are just some of the technologies under research at this stage.

"No one can say which of them will achieve a breakthrough. We all think it could take three to five years just for researches to reach that point, and five to ten years before it's available on an industrial scale."

While EVs never lived up to their hype – with the possible exception of the Tesla Model S – German premium brands continue developing them in order to lower their overall fleet emissions.

BMW sold only around 24,000 i3 electric cars last year, amounting to little more than 1 percent of the brand's volume.

Compared to their mutual rival, neither Mercedes nor Audi have made any substantial inroads, but both are working on launching long-range electric vehicles toward the end of the decade. At the Frankfurt auto show in September, Audi showcased what this could look like when it debuted the e-tron Quattro concept.

You can reach Christiaan Hetzner at christiaan.hetzner@gmail.com -- Follow Christiaan on Twitter: https://twitter.com/christiaanhtznr

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