Reference no: EM132941594
Mercedes Benz
Mercedes Benz is the top-selling luxury car brand in the world and recorded its highest quarterly sales ever in early 2018. Big sales gains on both the GLC crossover and the newly revised S-Class model accounted for much of this sales increase. A year earlier, in April 2017, Mercedes' parent company Daimler AG had initially set its 2018 sales forecasts at modest levels. When the new models were released, however, these forecasts were readjusted and the company was predicting growth in both luxury cars and SUVs, owing largely to the predicted success of these new models.
Mercedes is following a technology road map in which it plans for success with upgrades and new models in the short term (as seen with the GLC and S-Class launches in 2018), while at the same time making long-term adjustments so that it will be competitive well into the future as the car industry evolves. For example, in 2018, Daimler had a line of 10 totally battery-powered electric cars in development that would be on the market within five years. These would be sold under a new sub-brand, Mercedes EQ. The company was also planning to launch hybrid models of existing
Mercedes vehicles. These technological developments cost Mercedes about 2.3 billion euros in the first quarter of 2018 alone, so like any other significant investment in new car platforms, the cost would need to be absorbed over several years and several models.
As might be expected of Mercedes, the all-electric EQC class is projected to feature much impressive technology in line with the luxury car buyer's expectations. For example, the newly developed media system will respond to driver verbal commands, govern car functions, and manage charge status, energy flow, and other necessities for an electric vehicle. It will also learn over time, thereby improving driving efficiency. The initial promotion on the Mercedes Web page described the EQC class as "more than just an electric vehicle: It's a bold statement about the future of driving."
Indeed, the development of the hybrid and fully electric models is consistent with Mercedes' vision of technologies that are predicted to transform the car industry. These are known by the acronym CASE: Connected, Autonomous, Shared and Services, and Electric. These technologies will shape not just car features, but how cars and drivers interact with each other and with the environment.
- Connected has several meanings: The driver is connected to the car's functionality (ignition, door lock control, climate control, etc.) via an app. Drivers are also connected to other drivers (for example, to share information about accidents or slow traffic patterns).
- Autonomous also has several interpretations. It could mean fully autonomous driving (driverless cars), but it can also be defined more broadly. The media system described above, for example, monitors key metrics and learns through time, thus taking this responsibility to some extent away from the driver.
- Shared and Services has a big impact on trends in the customer market for cars. Due to the trend toward ride-sharing, car sales may shift to some extent away from consumers and toward companies that offer transportation subscriptions to customers.
- Electric for Mercedes clearly means battery-powered cars: either electric-combustion hybrid versions of existing cars (the most immediate solution), or fully electric cars, which are a longer-term goal. Consistent with its technology road map, Mercedes will gradually add these cars to its fleet, while phasing out older models with combustion engines.
The EQC cars are compliant with three of the four CASE technologies: by being connected and autonomous, they provide user-friendliness, and running on batteries has the benefit of protecting the environment. Of course, Mercedes drivers will get the benefits they have come to expect: elegant design and excellent driving performance. These attributes will not be compromised in the EQC series.
By the time the electric cars are launched, prototype versions will have driven millions of miles throughout Europe. These prototypes use the IONITY charging system, which is gaining acceptance as a standard in Europe; the number of IONITY charging stations is projected to ramp up significantly. Nevertheless, since the electric battery is such new a technology, soon to be commercialized for the first time by Mercedes, the company remains concerned about the potential warranty costs.
The expected launch of the first EQC model (an SUV) is in 2019. At least one car industry expert praised the design and appearance of the EQC in late 2018 but did raise a couple of concerns. The power train is similar to Audi and Tesla electric cars in terms of performance metrics (such as charging capacity), but Tesla was already on the market a year earlier and Audi is expected to launch the e-tron quattro® soon. Plus, while Mercedes is announcing a range of 230-240 miles, the effective range might be more like about 200 miles. If Mercedes sets a suggested retail price in the $50,000-$60,000 range, it might work, but if priced near Tesla and Audi at about $80,000 range, it may not be viewed as competitive.
Case Study Questions:
- How would you go about forecasting sales for the hybrid and electric Mercedes models? That is, what are the factors you would need to consider in advising the company moving forward? Importantly, what can go wrong?
- What external shocks to the system might seriously impact Mercedes electric car sales (positively or negatively)? Can anything be done to control for, or mitigate, these shocks to the system? (Think broadly about the car industry in answering this question.)
- What information used in developing the long-term forecast is the most uncertain?