Annual Report 2019

Ola Källenius and Harald Wilhelm on the 2019 finanicial year and Daimler’s sustainable business strategy

Interview

How would you summarize the 2019 financial year?

Ola Källenius: Last year shows us that the transformation is in full swing at Daimler. We have set the course for the decade – and taken the first important steps. Overall, 2019 was marked by material adjustments and a stable core business. We were able to maintain the Group’s unit sales at the strong prior-year level. But 2019 was challenging for Daimler in financial terms.

Harald Wilhelm: We cannot be satisfied with the development of EBIT and free cash flow in the past year, even though they include a number of special items. The transformation that the Group and the entire automotive industry are going through is also reflected in our figures. The transition to CO₂-neutral mobility involves high investments and initially higher product costs. But the changes ahead of us also open up many opportunities, and we intend to make the most of them. We have clearly defined a roadmap to ensure the required financial strength.

What were your highlights last year?

Ola Källenius: For me, first of all the products. At Mercedes-Benz, we set standards with new compact cars and SUVs. In addition, the market launch of the EQC, the launch of numerous new plug-in hybrids and our presence at the Frankfurt Motor Show: Our way forward is sustainable modern luxury. We also made progress with the electrification of our trucks, vans and buses. The latest example of that is the start of series production of the eSprinter. Electrification is a key element of our sustainable business strategy, which we formulated in 2019. It promises sustainable action in a wide range of areas – from CO₂ reductions and compliance with environmental regulations to data protection and respect for human rights.

Harald Wilhelm: In addition to these business highlights, it was above all exciting to get to know the company after I started at Daimler last year. I gained a positive impression: We not only have strong products, we also have a very committed team. That’s why I’m convinced that we will achieve what we have set out to do.

What does that mean for Mercedes-Benz in terms of climate protection?

Ola Källenius: We have defined those goals under the heading of “Ambition 2039.” In ten years’ time, we aim to achieve more than half of our car unit sales with plug-in hybrids or all-electric vehicles. By 2039, our new car fleet is to be CO₂-neutral. In the coming years, the focus will be on battery electric drive. But it’s not possible today to predict with certainty the technology that will best serve the customer needs of tomorrow and the day after. We therefore remain open for all types of drive systems. Our production is also gradually becoming CO₂-neutral. Our holistic approach also includes the recycling of raw materials, so we are evolving from the value chain and towards a value cycle. In addition, we are promoting sustainability among our business partners and suppliers, for example through new contract-award criteria.

Commercial vehicles constitute an important part of Daimler’s business. What does our path to sustainable transportation look like?

Ola Källenius: We are already a pioneer for electric mobility with our trucks, vans and buses. In less than two years, we will have battery-electric modes in our portfolio in all our core regions. They will be followed by series-produced vehicles with hydrogen drive by the end of the 2020s. And by 2039, we intend to offer CO₂-neutral new vehicles in all segments in our major markets. Our goal is CO₂-neutral transportation by 2050. But even in many years’ time, electric trucks and buses will still cost more than diesel models. A supportive framework is needed to make electric mobility more lucrative also for commercial customers.

Looking ahead, what are the biggest challenges for Daimler?

Ola Källenius: In the medium to long term, we anticipate a positive growth trend in the automotive markets. At the same time, we experience high volatility in the geopolitical and macro-political environment on a daily basis. So we have to be able to react quickly and in the best possible way. But we are in a good position to help shape a lot of these developments. We have worked out a systematic product plan to comply with CO₂ regulations in Europe. For future technologies and business models the customer requirement will remain a core aspect. And we have introduced measures to safeguard our profitability during the transition to climate-neutral mobility.

How exactly is efficiency to be increased at Daimler?

Harald Wilhelm: Our cost structure has to be improved sustainably. That’s why everything is being put to the test. We want to reduce material costs significantly. Personnel costs are to be reduced by 1.4 billion euros by 2022. And we are also going to make savings in administrative costs. At the same time, we are systematically prioritizing our investments. In the longer term, for example, we are reducing the complexity of our vehicle architectures, reviewing our product portfolio and focusing on the most profitable technologies. The key factor here is speed. We want to achieve tangible effects as soon as possible.

What does the future of mobility look like for Daimler?

Ola Källenius: Our business model will be based on vehicles that enable individual mobility in a sustainable way. Making one’s own Mercedes even more attractive with a whole range of services. Digitization and connectivity will open up many opportunities for us. China is a key seismograph for new trends also in this area.

Harald Wilhelm: We are making customers’ access to our vehicles even easier and more convenient, from digital purchasing to flexible use, offering mobility “from years to minutes” for example. Our mobility services are one component of all this. In this area, we joined forces with BMW last year. Now it’s a matter of continuing our growth and making our business sustainably profitable, and we will prioritize our resources for this purpose.

And what do the next steps for autonomous driving look like?

Ola Källenius: It’s important to deliver applications that are attractive for our customers and profitable for us. With cars, the focus is initially on automated driving for certain distances on highways. We are therefore joining forces with partners, which will enable us to share costs and accelerate innovation. With fully automated driving, we see the most promising applications first for trucks – to be followed by cars.

Which attitude is needed to implement all of these targets successfully?

Ola Källenius: We need courage and determination, openness and enthusiasm. All our colleagues are involved in determining how we work together. We have significantly developed our corporate culture in recent years, and we want to build on that.

What plans do you have for the coming years?

Harald Wilhelm: To justify the trust that our shareholders place in us. We will do everything in our power to deliver what we have promised: high financial strength through sustainable efficiency.

Ola Källenius: There are many good reasons to look ahead with confidence. Demand for mobility is increasing. We will continue utilizing this growth potential. We have everything it takes – strong brands and products, the best minds and the right strategy.