Mercedes chief warns against U.S. EV incentives turning into protectionism

Mercedes-Benz CEO Ola Källenius said the American Inflation Reduction Act has the "right ambition" to help accelerate the auto industry toward a decarbonized future.

"If political leaders make that a priority and are also willing to spend government money on that, that can be very helpful," Källenius said on an earnings call from Germany on Friday.

But the executive warned against letting the legislation turn into a cudgel for U.S. protectionism.

"If there are protectionistic side effects, that is unwelcome," Källenius told analysts.

Källenius said that over the past three decades, an "opening up of markets" driven by the World Trade Organization has created economic and wealth growth.

"To peel back and go into perhaps a more protectionistic direction would stifle that economic growth and would not be good for export-oriented economies and companies like ourselves," he said.

The Inflation Reduction Act signed last summer incentivizes North America's electric vehicle and battery production with a $7,500 tax credit on EV sales.

While the legislation, with its tax rules on sticker prices and household income caps, is likely to disqualify Mercedes' luxury models in the near term, those vehicles should qualify for up to $7,500 in commercial clean vehicle tax credits.

"That is a net benefit to the customer and will lead to some impetus in the market for us," Källenius said.

Even before the legislation passed, Mercedes was regionalizing vehicle production and its supply chain in North America.

With the new federal backing, Källenius said that strategy will "be financially supported and be more economically viable."

The automaker has invested $1 billion in retooling its sprawling U.S. factory in Vance, Ala., to build battery-powered variants of its GLE and GLS utility vehicles. Last March, the automaker opened a 177,000-square-foot battery assembly venture on 270 acres near the assembly plant.

Mercedes is also investing in battery production and an ecosystem of suppliers to prepare for EV production in Alabama.

In April, supplier Envision AESC said it will build a $2 billion factory 300 miles away in Bowling Green, Ky., to supply a new generation of battery components for Mercedes. The Envision AESC's battery cell and module plant will open in 2025 and be able to supply 300,000 vehicles a year by 2027.

Last summer, Mercedes said it was finalizing an agreement with lithium miner Rock Tech Lithium based in Vancouver, British Columbia, to supply Mercedes-Benz's European operations with up to 10,000 tons of lithium hydroxide annually starting in 2026.