Published on February 14th, 2018 | by James Ayre0
Daimler Warns That Falling Diesel Car Sales & Switch To EVs Could Trigger Supplier Bailouts
February 14th, 2018 by James Ayre
In its recently released annual report, Daimler has argued that investors should be aware that a shift away from diesel cars and towards electric vehicles could force the firm to bail out some of its suppliers — that is, to deliver “compensation payments” to them.
The Daimler annual report reads: “Due to the planned electrification of new model series and a shift in customer demand from diesel to gasoline engines, the Mercedes-Benz Cars segment in particular is faced with the risk that Daimler will require changed volumes of components from suppliers. … This could result in over- or under-utilization of production capacities for certain suppliers. If suppliers cannot cover their fixed costs, there is the risk that suppliers could demand compensation payments. … Necessary capacity expansion at suppliers’ plants could also require cost-effective participation.”
In other words: Change is hard. Don’t make us do it. Or if we must do it, note that that’s why our finances will suck.
Reuters provides more: “Daimler’s suppliers are being forced to invest to help electrify the entire Mercedes-Benz range by 2022, prompting the carmaker to use unusually frank language to warn about the impact of the shift to electrified cars in its report. … Daimler created a risk management committee to oversee its suppliers in the aftermath of the 2008 financial crisis, when some smaller companies ran into cash-flow problems, forcing Daimler to step in. Daimler said earlier this month that its profit growth would be dampened this year by spending on new technologies such as electric and autonomous vehicles.”
The report also notes that the “ability to pass on the higher costs of commodities and other materials in the form of higher prices for the manufactured vehicles is limited because of strong competitive pressure in the international automotive markets” — in other words, if the company raises pricing for electric vehicles too high (so as to maintain profit margins), it will be undercut by foreign firms.
It’s worth remembering here that Daimler is currently being sued by owners of diesel Mercedes-Benz vehicles in the US in relation to illegally high emissions, and that it’s currently being investigated along with other German auto firms in relation to various crimes of market-distorting collusion.
It’s also interesting to note here that Daimler CEO Dieter Zetsche saw his total remuneration climb to €8.61 million in 2017, up from €7.61 million in 2016.