Mercedes-Benz (ETR: DAI), the leading automobile brand of parent company Daimler AG, has announced that it will invest $1 billion to begin the manufacturing of new electric SUV models at its current plan in Tuscaloosa, Alabama and construction of a battery plant nearby. This investment will result in a 1-milion-square-foot expansion with construction to be completed in the early 2020s which is also expected to create about 600 new jobs in the area.
The automaker's head of production planning, Markus Schäfer, has commented that "With production locations for electric vehicles and batteries in Europe, China and, now, the U.S., [the company's] global network is ready for the era of electric vehicles." Mercedes has started the transition to electric cars after global concern for climate change has lead to an increased demand for hybrid and electric cars. Currently, the company's plan in Alabama builds mostly SUVs. However, it plans to refocus on producing electrified versions of the same vehicles (such as hybrids).
Additionally, by building a battery plan nearly, Mercedes will have easy access to the entire production line which will help it compete with fellow electric vehicle manufacturer, Tesla (NASDAQ: TSLA), in the production of home batteries. Mercedes is not the only automaker who has announced plans to invest in electric vehicle technology. Ford (NYSE: F) and Volkswagen (ETR:VOW3) are just two of the many that have moved to reduce the number of cars powered by fossil fuels.
However, the shift to electric vehicles is quite costly. Just recently, Daimler laid out a plan to cut $4.8 billion from its spending by 2025 in order to compensate for the weaker margins from electric cars. Amid tightening emissions rules, Daimler will slowly begin to reduce the number of models with combustion engines as of 2020 and hopes to electrify the entire portfolio of Mercedes by 2022. Many people, including Elon Musk, are criticizing the company for such a small investment. Considering that Daimler earned over $180 billion in revenue in 2015, a $1 billion is close to nothing for them. However, this is not their only EV investment, it is simply they are investing in the United States.
Earlier this year, Daimler announced that they will invest $11 billion on developing 10 new electric car models by 2022. Keep in mind, that although it looks like Daimler is very serious about supporting electric vehicles, they are being very cautious. This is because the automaker's main business (and thus most of their assets) are linked to gas-powered cars and therefore they cannot make any huge investment plans as it could hurt them. However, as consumer demand for electric vehicles picks up, we can expect to see even more EV investments from Mercedes.