Mercedes-Benz Strategy Update: electric drive
This feels like a winter day in the northern part of my home country Sweden. The weather is chilly. Actually, it's freezing cold. But I love it. Because that's how it's supposed to be. And we want to keep it that way.
That's why we all need to focus on fighting climate change - around the globe. For us at Mercedes-Benz, this means: We have to change fundamentally. And we will - even faster than previously planned. My name is Ola Källenius and I’m the CEO of Mercedes-Benz.
Here in our climatic wind tunnel in Sindelfingen, we can control the climate with the push of a button. Outside, it won't be so easy. Maximum effort is required - from all of us. Two years ago we put a stake in the ground with what we call Ambition2039: This saw us commit to making Mercedes-Benz carbon neutral - more than a decade ahead of the Paris Agreement's 2050 deadline. But now it's time to accelerate on that path with the most important lever available to us: the full and rapid electrification of our products.
The EV shift is already picking up speed. The tipping point is getting closer, especially in the luxury segment where Mercedes belongs. And that's why we will up the ante: We are accelerating from EV-first to EV only: Next year we will have battery electric options in all segments we serve and by 2025, our customers will be able to choose an all-electric alternative for every model we make. We will introduce 3 new EV-only architectures And by the end of this decade we will be ready to go 100% electric – where market conditions allow. That does not mean we will wait for it to happen.
We are going to make it happen! This implies the most significant re-allocation of capital in decades and an even more rapid pivot away from the combustion engine. But we are convinced we can do it with strong profitability, and we believe the focus on electric only is the right way to build a successful future and to enhance the value of Mercedes-Benz. Today, we would like to show you the details of this acceleration.
And it all starts with the core of our strategy - building the world's most desirable cars. Because that's our main duty in the EV-transformation: convincing our customers to make the switch with compelling luxury products. Since its very beginning, Mercedes-Benz has been more than just a car manufacturer. We've always been a luxury brand.
Driving a Mercedes was, is and will be something extraordinary. Take the 300 SL Gullwing, for example. When this car hit the market in the fifties, people stared at the Gullwing as if it was a UFO. So, what will future automotive luxury look like? One answer to this question is the EQS: The first-ever all-electric luxury sedan from Mercedes-Benz. The EQS is designed to exceed the expectations of even our most demanding customers. Because, well, it's the electric sibling of the S-Class.
And there is so much more to come. At Mercedes-Benz, we’re not changing because we have to. We want to change because electric mobility is compelling and sustainable. My name is Britta Seeger and I’m responsible for marketing and sales at Mercedes-Benz. Until recently, we expected a moderate development of the global EV market.
Now we believe customer preferences will shift even faster. Fully electric vehicles dominate the luxury market by 2030. Of course, no one can foresee when the last combustion engine will be sold, because that depends on the customers and their respective local market conditions. But we have a clear message today: Mercedes-Benz is getting ready to go 100% electric by the end of the decade – and I mean fully electric vehicles.
Now, how do we want to get there? So, first of all, let’s talk about architectures. Following the launch of MMA, the compact electric first architecture in 2024, all new Mercedes-Benz vehicle architectures will be electric only. To get specific, in 2025, Mercedes will launch three electric-only architectures.
MB.EA will cover all medium to large size vehicles in the passenger car line up and will over time replace the rear wheel based architecture (MRA) as well as the first dedicated electric platform (EVA). AMG.EA will be a dedicated performance electric vehicle architecture addressing technology and performance oriented AMG customers.
VAN.EA ushers in a new era for purpose made electric light Commercial Vehicles, which will contribute to emission free transportation and cities in the future. Next, let’s have a look at our products. Today, we already offer a broad electrical portfolio: For many customers our long-range plug-in-hybrids are the perfect bridging technology. As long as the charging infrastructure still needs to be improved, the long-range plug-in-hybrid will remain a very attractive option for years to come. However, at the end of the decade, our focus will be on BEV only.
Because we also see that more and more customers are switching directly to battery electric vehicles. And we support that switch. In 2021 alone, we are introducing four new battery electric vehicles. Next year we will present SUV versions of our EQE as well as of our EQS.
All these cars will provide high range, first-class comfort and impressive dynamics. And I can promise you that we will maintain this momentum going forward. What applies to the Mercedes portfolio also applies to our incredibly strong sub brands: We want to go electric. So, you can look forward to a top-notch EQS SUV version of Mercedes-Maybach, for example.
In 2024 we will launch our full-electric G-class as well. It will continue the great story of our G- series. Mercedes-AMG will go all-electric, too. This is a major step – not only for AMG but also for the world of performance cars as a whole.
The AMG team is developing a completely new fully electric platform which will redefine high performance in the electric world: On top of a phenomenal electric drivetrain, AMG will take driving dynamics to a new level. These upcoming AMGs will also move boundaries in terms of efficiency and aerodynamics. And there will be so much more to come to make these cars real AMGs in an electric world. So, as you can see, we have amazing products for all our customers.
Given the great market success of our electric products, we now raise the level of ambition. Previously we’ve been aiming at a 25% xEV share in 2025. Our new target is to drive the xEV quota up to 50% in 2025.
Our ambition is to sell these products in a way that matches the Mercedes approach. We will use our unique brand position to grow economic value by enhancing our product mix and pricing, by ensuring our volume targets focus on the most profitable models and regions, and by driving loyalty and growing recurring revenues. We have one of the world’s most valuable customer bases – and we’ll make the most of it.
So, at Mercedes, we are going from EV-first to EV-only for our new architectures and cars. On a global level, the pace of change in the market will vary, of course. A little faster here, a little slower there. But the transformation to battery electric cars is unstoppable. And it will pick up speed everywhere. Why? Because technology is accelerating rapidly.
Take this EQS for example: The WLTP range is now up to 780 kilometres. That's outstanding. And with 385 kW of system power from two electric motors and all-wheel-drive, the EQS is a blast to drive. So while it's true that regulations and policies for curbing emissions are becoming stricter across the globe, we believe that the primary driver of rising electric vehicle demand will be the recognition amongst consumers that it is a superior technology.
But a crucial factor for mass adoption will be charging technology and infrastructure. With the EQS, up to 300 kilometres of range can be added in just 15 minutes. To make sure that everyone can drive sustainably in the future, we need an efficient public charging network.
Its expansion must keep pace with the manufacturers' electric ramp-up. That is our main message to policy makers industry and government must work together on this. But as an automaker, our main focus needs to be on the product side. So, let's take a closer look at our technology plan now.
I think with the new EQS we’ve shown that we are both serious and passionate about electric mobility. My name is Markus Schäfer. I’m the Chief Operating Officer and responsible for R&D. Our EQS is the first car built on our new dedicated EV architecture. One more sedan and two SUVs will follow. Minimum! The next milestone will be our upcoming MMA architecture for compact and mid-sized cars.
This architecture is designed “electric first!”. This means: The focus clearly lies on ultra-efficient, fully-electric models. In 2025 we will further consolidate our architectures to one final overarching system: MB.EA, the Mercedes-Benz Electric Architecture. No combustion engines any longer. And it will revolutionize the way we engineer electric cars. In fact, it will not even be an architecture as we have known it so far.
It’s a scalable modular system offering the different components as we need them for different vehicles – plug and play, off the shelf. Just like our upcoming software architecture MB.OS provides one digital backbone for our future vehicles, we engineered MB.EA as the one electric backbone for the Mercedes-Benz EV portfolio. The engineering philosophy behind them is the same: ultra-efficiency, maximum simplicity and unrivalled flexibility for faster technological progress.
If we want to get ready for 100% electric cars, then we also need to step up our game when it comes to batteries. They are the centrepiece of every electric vehicle. So, what is our battery strategy? To reach our goal until the end of the decade, we will need a capacity of more than 200 Gigawatt hours. Therefore, I’m happy to announce today that we will set up eight new gigafactories together with our partners around the world.
One of the gigafactories will be set up in the U.S. to produce the majority of batteries for the cars and vans from our Tuscaloosa and Charleston plant. We will build four more factories in Europe – with our existing strategic partners and with a new one. I’m happy to announce today that with regard to battery cell manufacturing, we intend to team up with a new European partner to develop and efficiently produce future cells and modules for our electric vehicles in Europe.
We are looking forward to revealing further details as soon as the agreement has been finalized. The creation of a new global battery champion will help to ensure that Europe remains at the heart of the auto industry even in a new electric era. In doing so, we will not only secure supply, It gives us another tool to transform and enhance our legacy powertrain footprint. At these eight new gigafactories and at the already existing factories of our global battery production network, we will produce batteries for the entire product range – from A as AMG to V as Vans.
Our batteries will be highly standardized. More than 90% of all future Mercedes vehicles will be based on a common battery platform. At the same time, we will be flexible enough to offer individual solutions to all our customers. So, how can we do that? We are aiming for a modular battery system that consists of uniformly designed components and standardized interface to the entire vehicle. Only two differentiating characteristics will create the necessary variance in terms of range, charging and driving performance: cell chemistry and height.
Besides a very innovative battery technology, an improved eDrive system contributes to further increasing the range and efficiency of electric vehicles. We already have world-class electric vehicle technology. But we intend to take it to the next level by insourcing eDrive technology.
This will allow us to build truly differentiated products with unmatched performance. In-house electric motors are a key part of our strategy with a clear focus on efficiency and cost of the entire system including inverters & software. Last year at our strategy update, we told you about eATS 2.0, an in-house developed and built motor that will be key to the forthcoming MMA architecture.
eATS 2.0 will have an outstanding performance, as part of an 800v powertrain with a silicon carbide inverter. eATS 2.0 is a radial permanent magnet motor, designed for the majority of our key products.
For our forthcoming AMG high performance cars based on the AMG.EA architecture, we wanted something even more special. Something that will give a level of power density, performance and endlessly repeatable acceleration that will be truly unmatched. And that‘s why we are so excited to announce today an important acquisition.
We are acquiring UK based electric motor and power electronics company YASA. To tell you more about YASA, here is a short film. The electric motor is not a commodity. It‘s a fast developing technology where innovation and expertise will drive performance and differentiation. Almost all electric motors in the automotive world at present are radial - long and cylindrically shaped.
But for high performance applications there is a new and very different concept: the axial flux motor. And at the very cutting edge of Axial flux there is a motor and very special technology, conceived, developed and already in production: the YASA axial flux motor. With vastly superior power to weight, outstanding efficiency and endlessly repeatable performance, the era of the ultra high performance electric motor is here.
YASA is an early stage technology company, based near Oxford in the UK. From a different starting point to conventional powertrain technologies, YASA has developed its axial flux motor and high performance controller, has been granted over 120 patents and has brought the motor to production. YASA motors very recently entered low volume production on two ultra-high performance mid-engined hybrid supercars. But now it’s time to take it to the next level...
YASA will now be a 100% owned subsidiary of Mercedes-Benz and its expertise and resources will be focused on delivering world-beating Electric Drive technologies for AMG-Mercedes‘ electric-only platform. YASA will also act as an Electric Drive innovation partner and develop pioneering new electric drive innovations for Mercedes-Benz. Mercedes-Benz will be bringing best-in-class axial flux motors onto the road and with YASA’s continual development this technology is likely to remain highly distinct, offering exceptional performance. There you have it, YASA is going to power us to a new level of cutting edge electric drive technology. But becoming more electric and sustainable is not just about batteries and alternative drives. Because we all know: That won’t be enough! That’s why we at Mercedes-Benz are working towards a CO2 neutral supply chain.
I’m very proud to confirm that as early as this year, we will be using the first steel from Salzgitter AG, which is 100% recycled and thus CO2 emissions are reduced by 60%. We are also taking a stake in the Swedish steel manufacturer H2 Green Steel, which will supply us with CO2-free steel from 2025 on. Of course, when talking about a green supply chain the battery cell is of particular importance. The EQS, for example, contains CO2 neutrally produced batteries. Our EQS suppliers source raw materials for battery components only from IRMA-certified mines.
Now we are going one step further to both preserve human rights and secure our future supply. For lithium, for example, we intend to team up with the Lithium producer Albemarle Corporation. Together, we are discussing reduction of CO2 emissions in lithium production, implementation of lithium recycling, and localization of battery grade lithium production in Europe and the U.S. Direct sourcing of other battery raw materials like nickel and cobalt are under consideration. We will help make the world a climate neutral place with the aid of exceptional engineering and with fascinating technology.
Because that’s what we love – and what we do best. My name is Sajjad Khan, I’m the Chief Technical Officer at Mercedes-Benz AG, responsible for eDrive and the Mercedes-Benz Operating System. When we say the word e-drive, we mean the battery, the drive unit, the charging-system and the complete e-drive software.
Let me start with the battery technology. Today we are using Lithium-Ion batteries with NMC811 in our flagship vehicle EQS. An energy density of more than 550 Wh/l on cell level is the enabler for an installed energy capacity of 111kWh in total. This leads to a bench position in the luxury segment. With our next battery generation, we will vary the chemistries within the battery to provide the best solution depending on the customers’ need in different markets.
These chemistry variants will be available in our forthcoming platforms. We are also working with our partners like SilaNano on the anode technology to increase energy density up to 900 Wh/l by using silicon-carbon composite in the anode. This will allow us to offer unprecedented ranges and even shorter charging times.
Looking ahead, we plan to team up with additional partners to accelerate technological development of the High-Silicon Anode. We are also proactively working with promising start-ups to look into the disruptive technologies of the solid-state chemistry. Solid-state batteries have the potential to push the energy density beyond the limits of conventional lithium-ion cell up to 1200Wh/l and more than 400Wh/kg. This will double the energy capacity and reduce weight in the same packaging space. Furthermore, our solid-state technology will endure more charging cycles over lifetime.
With solid-state we have the opportunity to rethink the design of the battery systems as a whole - and all of that at the prospect of even higher safety. Our aim is to continuously integrate the most advanced battery cell technology in our production cars, vans and in all our AMG models. With our new lifecycle strategy we will raise the bar, increasing the range during the lifecycle by roughly 25%. This shows that e-mobility is so much more than just a new drivetrain.
It moves our whole business into completely new dimensions. Especially if we combine it with the possibilities of software. The Battery Management System is the brain of our batteries. With more than 50 intelligent system functions, we regulate the whole battery system, for example state-of-charge, stage-of-health, voltage, electric current, temperature of each cell. In such a way, our customer gets the best range output and we have the best system available. Our battery management system entails an intelligent AI based algorithm that adapts the whole battery system to the individual driving behaviour.
With the best-in-class battery and drive unit we have the ingredients for a luxury driving experience with our electric cars. However, one more important factor for the whole battery vehicle experience is the premium charging. An easy, seamless and integrated charging experience is enabled by our Mercedes me Charge. Together with the market launch of the EQS in North America, we have partnered with ChargePoint in the U.S. Together we will establish a new benchmark charging network with access to almost 60,000 public charging places nationwide through all relevant charging networks. And as an industry first, the additional integration of more than 60,000 semi-public chargers at shopping malls, hotels and workplaces make Mercedes me Charge the largest integrated network in the US - with just one account! Because of the fast ramp-up of our BEV portfolio, we see the need for additional infrastructure especially in Europe also.
We already have the largest open high-power charging network with Ionity. However, we will further develop this network, so that charging becomes even more convenient. Furthermore, with Shell we will be working on expanding our overall charging network: Shell will offer enhanced access to its Shell Recharge network for Mercedes-Benz customers consisting of over 30.000 charge points by 2025 in Europe, China, and North America – including over more than 10.000 high-power chargers globally. In addition, we are planning to launch several premium-charging sites in Europe, which will offer a bespoke charging experience for our customers with top-notch facilities. To sum it up, Mercedes me Charge is already one of the world’s largest charging networks and currently comprises of more than 530,000 AC and DC charging points worldwide.
Once you arrive at the charging station, the brand new feature “Plug & Charge” simplifies the complete experience: Plug in, charge, unplug – just as easy. No authentication is required nothing else is required and the payment automatically runs in the background without any additional hassle or action. Plug & Charge will go live with the market launch of the EQS this year.
If you’re driving an electric vehicle it’s also important that it runs on clean electricity. Mercedes-Benz in this magnitude is one of the first automotive manufacturers that uses the so called guarantees of origin to green charging sessions. This ensures that an equalent amount of electricity from renewable resources is fed into the grid for charging electric vehicles with Mercedes me Charge. Mercedes-Benz therefore facilitates green charging at all different public charging points in the Mercedes me Charge network in Europe & North America.
Further markets are being evaluated in the time to come. So, let’s summarize in a few sentences: It’s all about providing value to our customers by offering them superior technology in the shape of longest range, best charging experience and above all the fun-to-drive the most desired luxury vehicles from Mercedes-Benz. Today, we’re talking about the future of Mercedes-Benz. And naturally it’s pretty much all about numbers, facts and data.
But we all know: The real magic happens when impressive technological achievements become reality in a car. That's why I'm very proud to give you a preview of our VISION EQXX. It is our “Ambition to Lead in Electric Drive” translated into a car. Back in 2020, we initiated an exciting next step in electric vehicle development and put together a cross-functional, multi-disciplinary team of experts supported by specialists from the Mercedes-AMG F1 team. We instructed them to aim beyond 1,000 km on one charge.
But not by making the battery bigger. Anybody could do that. No, they’re working with a normal sized battery, destined for series production in a forthcoming Mercedes compact car. Efficiency is the new currency! To this end, the goal is to massively reduce consumption - with extraordinary efficiency improvements in almost all areas.
In terms of aerodynamics this project aims at going even beyond what’s been achieved with the EQS, already the world‘s lowest Cd series production car ever. And we are also working on increasing the energy density by additional 20% at the cell level compared to the EQS. Our eDrive experts are making rapid gains in efficiency and pushing the boundaries of what‘s possible in terms of eMotor, inverter, battery design, packaging and thermal management. They’re chasing marginal gains that compound to substantial increases in range. All these factors are contributing to reaching a single digit figure for kWh per 100 km or – put another way – efficiency of over 6 miles per kWh. The VISION EQXX itself is in construction – with pioneering body castings and sophisticated materials.
Our goal is to integrate these new technologies in future Mercedes road cars. You can really look forward to next year when we will demonstrate its real world driving range! We are accelerating our ramp-up in R&D activities to serve an all-electric era. Investments in new technologies will be significantly increased and pulled forward. This includes expanded activities in battery cells and systems.
We will also prepare our global production network for 100% electric output. From a capital allocation perspective, we will do this within the very clear and strict guidelines that we set out in 2020, to ensure that we can remain a very profitable and cash generative business, creating value for our shareholders. And we will also do this while ensuring that we build sustainable cars in a sustainable way. Our Factory 56 in Sindelfingen is the blueprint for future Mercedes-Benz plants around the world. It is the home of our S-Class and our EQS. In this factory, we have realized CO2-neutrality, maximum flexibility and efficiency.
When it comes to sustainable production of sustainable cars, we at Mercedes-Benz want to walk the talk, while leaving the smallest footprint in the process. My name is Jörg Burzer and I'm the head of production and supply chain management. Here at our Factory 56 in Sindelfingen we have already switched to 100% CO2 neutral manufacturing, retooling our production to embrace a sustainable future.
And the great news is: By 2022, all passenger car and battery assembly sites run by Mercedes-Benz AG will switch to carbon neutral production. Demand for electric vehicles is rising, accelerating a fundamental transformation of our industry. But there is one thing that's not going to change anytime soon: At Mercedes, we take pride in our unique production expertise - driven by generations and a spirit of relentless improvement.
And we are ready to scale up: Our plants, the largest are located in Beijing, Bremen, Sindelfingen, Rastatt and Tuscaloosa, are all capable of building BEVs. We currently assemble five different BEVs. And next year, eight Mercedes-Benz electric vehicles will be produced on three continents - with batteries from our worldwide network. Our cooperation on cell production will further give us the opportunity to transform our established power train network.
Of course, success is the result of teamwork - now more than ever. That's why we are also partnering with selected experts in their field. The latest example: A global leader in highly innovative battery production and automation systems, is joining forces with us to strengthen our battery production capacity and know-how. The cooperation focuses on battery module assembly as well as pack assembly.
In addition to seeking higher levels of efficiency in production, we are using the transformation towards electric vehicles as an opportunity to advance the cause of sustainability. Establishing a sustainable circular economy is a key lever for reducing our resource consumption. To that end, we are designing new processes, which take account of the entire lifecycle, with a closed loop, while preserving key values. High quality objects tend to last a long time, especially when they are supported by established remanufacturing processes or when key components are repurposed. The batteries for example can be reused to help balance the electricity grid.
The batteries themselves can be recycled, a way to curb the consumption of precious materials. We are currently in the process of evaluating and planning the installation of a battery-recycling factory in Kuppenheim, Germany to develop and secure recycling capacity and know-how. Start of production will be in 2023. Depending on the promising discussions with public authorities.
Going forward we will increase electric vehicle output while at the same time raising efficiency and sustainability. New digital production methods, a higher degree of vertical integration for battery manufacturing and a greater use of recycled materials will help us doing so. This makes luxury and sustainability a natural fit.
We at Mercedes-Benz are ready to make the electric switch when you are. In October 2020 we presented our re-focus strategy based on 6 pillars. Since then we have made substantial progress executing it. I can’t think of a better proofpoint for a luxury approach for a new S-class and EQS.
Our recent results are testament that we are growing profitable and that we are moving into the right direction. With the top end vehicle group we have established the new unit to shop our profile of our sub brands AMG, Maybach and G. We embrace our customers with the new personalized and optimized CRM tool, we created together with our partner Saleforce.
We introduced green charging for our customers and we are in the process of recruiting 3,000 software experts for developing our new car software MB.OS. And we are also making progress when it comes to improve our industrial footprint. The transformation process is in full swing, because in the long run it benefits no one to work in a plant with a great tradition. It is so much more important to work in a plant with a great future.
My name is Sabine Kohleisen and I am responsible for Human Resources at Mercedes-Benz. Our company has been around for 135 years. This great history is not the result of a sense of tradition but of faith in the future and the spirit of innovation. That’s why we will continue to change. When people hear the term transformation, many first think of electrification, or digitalization. But the transformation of our company begins much earlier than that.
Namely with the people who develop, build, sell and maintain our products for our customers. All of us at Mercedes-Benz have internalized that our transformation will only be successful if you also transform ourselves as a team. Therefore Mercedes-Benz is also accelerating its people plan.
We are creating optimal conditions for everyone who wants to shape the transformation of the automobile. 3 elements of our HR strategy guide us on our path forward: re-shape, re-skill and re-charge. Let’s start with re-shaping our organization. A transformation of our workforce will involve tough decisions.
Yes, overall we must and will reduce our personal costs. We will continue this effective process working together with employee representatives and we will do this responsible by focusing on staff fluctuation and fair solutions. For example with mutually voluntary arrangements and severance payments as well as attractive conditions for the transition to retirement. We are well aware of the great responsibility we have to work with our colleagues. This includes the purpose for modernization of our facilities to help us to take on new challenges.
This year together with the works council, we have realigned two of our most traditional conventional powertrain production plants. Stuttgart Untertürkheim will become a technology competence center with a campus focusing clearly on electric drive and battery technology. A new factory for the small-series production of future battery cells, and a dedicated battery safety lab, will complement Mercedes-Benz's existing research and development activities in the field of battery technology. Berlin Marienfelde will become a competence center for the digitalization of the global Mercedes-Benz production network.
The focus is set on the development and implementation of MO360, the digital Mercedes-Benz production ecosystem. Newly founded Mercedes-Benz drive systems-unit enables and support the transformation of our plants. For the first time all drive types will be integrated in one unit. We will not allow a two class society to immerge between the different technologies. At Mercedes we are one team. And at every step the employee will remain at the center of our actions, we are ensuring that motivated and qualified people remain at the heart of this fundamental shift.
That brings me to the second point of our strategy: re-skill. 2020 alone, about 20,000 employees in Germany were trained on all aspects of electric mobility. Our internal tech-academies and other trainings offer the best possible opportunities to develop future oriented qualifications. We believe in the exceptional capabilities and the ingenuity of our engineers. Their passion for innovation is not tied to one particular technology. At R&D, employees are gradually being shifted from developing conventional drives to electric drives.
We are already off to a successful start in this: And look at the results: The team we have today has built the EQS - the best electric luxury sedan in the market. Now imagine what our team can do in the future. Especially since we do not only re-shape and re-skill. To make sure our company remains a place full of bright minds we're also re-charging. That's the third element of our people plan. Vehicle software, for example, is a key component of our strategy. To deliver on our plans with MB.OS we will hire 3,000 new software engineers.
1,000 of those jobs will be created in Germany. We offer an attractive contractual framework which allows for innovative which allows for innovative employment conditions. Because our Mercedes standards do not just apply to our products - we also aim to meet them as an employer. In the field of new competitors we call for a new spirit of cooperation. This new generation of talented people will harness and create a new culture. New technologies require a new area of expertise.
Our team has everything we need for the challenges ahead and I’ve never experienced an atmosphere of renewal at our company as we have today. Now we accelerate down the road we've chosen: We electrify and digitalize our entire company. And together as a team we will succeed - re-shaped, re-skilled and re-charged. So, we are preparing ourselves to go all-electric. And on this way, we are not chasing the volume crown.
Mercedes-Benz is laser focused on profitable growth. Managing this faster transformation while safeguarding our profitability targets we’ll ensure the enduring success of Mercedes in this exciting new era. The good news is: The cost of batteries and other components of the electric drivetrain is gradually coming down, which will accelerate the shift and aid profitability. Still, delivering on our financial ambitions, won't work autonomously.
It will require a tremendous effort in every aspect of our business - in other words: We need a hands-on attitude. Hello, everyone! My name is Harald Wilhelm and I’m responsible for numbers. This is our Board Room and the most important topic that we discuss here is how we manage the transformation in a profitable way.
You heard what we will do differently and how we plan to accelerate. Obviously that raises questions at your end: regarding capital allocation regarding our investment profile and regarding margin evolution towards 2025 and for the second half of the decade. Our key message is: We are 100% committed to our margin targets - also in the BEV world. What‘s our transition plan to go BEV-only? Let me wrap it up: Next year we plan to have battery electric options in all segments we serve.
And by 2025, we want to enable our customers to choose an all-electric alternative for every model we make. By the end of this decade we want to be ready to go 100% electric, wherever market conditions allow. We will ramp-down ICE vehicles faster. Plug-in hybrids are an important component in the transition to a CO2-neutral world, however a transition technology. This requires more BEV models to complete our EV portfolio.
We will offer a fully battery electric variant in every vehicle segment currently served by Mercedes-Benz. To accomplish this, we will launch three electric-only architectures: MB.EA, AMG.EA and VAN.EA. To support this ramp-up we will set up eight new gigafactories and we will enter a new cooperation.
Now let me walk you through how we will manage and pull all levers to generate strong financials, also in this electric era. Let’s start with the top line. Ola already mentioned a key element: “Mercedes-Benz is laser focused on profitable growth.
We are not chasing the volume crown.” We have already achieved significant improvements in this area over the last twelve months. Actually, in each of the last 4 quarters revenue per unit increased year-over-year. Obviously, healthy demand and supply constraints driven by COVID and semiconductor-issues supported this, but it is also obvious that our strong product line-up and our determination towards fostering more profitable growth – one of our 6 strategic pillars - are crucial here. Our goal is to continue on this path and to further increase net revenue per unit during the decade – sustainably and significantly.
This is deeply embedded in our refocused strategy we presented last fall. That means we see the potential going forward to optimize pricing. And having the right product mix is even more important in an electric world. Adding more high-end electric vehicles, for example in the AMG family, helps us to digest the variable cost. Rising revenues from digital services will support our revenue line as well. The switch to the direct sales model is the most important change in how we manage sales.
It takes cost out, increases price transparency and allows us much a tighter grip on pricing. Let’s look at the variable cost side now: That’s where you win or lose the battle. We will pull all levers, in particular on BEV. In October, we told you, that we plan to reduce variable costs, including material and manufacturing costs, by 1% per year until 2025 – on a per unit basis, before product mix. These targets remain valid and we are progressing towards them.
And after 2025 we will target further reductions to compensate cost escalation and regulatory required content, such as EU7. Let me highlight 3 main drivers for bringing down the variable cost of our BEV-portfolio: First, we expect that the cost of the electric drivetrain can be further optimized in the second half of the decade. Thanks to scale benefits and continued innovation. Second, we expect battery prices to come down – significantly below 100 € per kWh, especially for LFP-technology. The battery platform concept that Markus has highlighted plays an important role as well.
We expect that the share of the battery costs within the vehicle will fall significantly. Thirdly, as mentioned by my colleagues, our future electric only architecture will be designed as a “scalable modular system” – a further pre-condition for improving variable costs of BEVs. On the ICE-side, we obviously enjoy lower variable costs today vs. BEV. And we have described how we expect to further reduce the costs year-over-year until 2025.
As you can see we try to be ambitious on the variable cost side. However, from today’s point of view it will not close the gap completely between ICE and BEV. Now you will have a question what that means in terms of margin.
Well, therefore, the improvement of the revenue per unit is so crucial, including all of the levers, in particular product mix. However, in view of the number of variables ahead in this decade, we try to be responsible and proactive. Hence, we take additional measures in terms of fixed cost and funding reduction. In terms of capital allocation and investments, we are shifting gears and getting ready to go all-electric by 2025 from a product portfolio perspective. What does it mean? Capital allocation is moving from EV-first to EV-only.
On the one side this means investing into the three all-electric architectures MB.EA, AMG.EA and VAN.EA that my colleagues have alluded to - thereby adding exciting new BEV models to our portfolio. Furthermore, our intensified battery footprint will become a part of our investment plan. On the other side, we will radically reduce the non-BEV investments. You can see on this chart how ICE and PHEV-investments will go down: by – 80% until 2026 from 2019.
This more radical shift in capital allocation towards electric-only allows us to confirm that the overall target we showed in October remains valid: minus 20% until 2025 versus actuals 2019. And with the focused electric architectures we can reduce invest, even beyond 2025. In between, as guided in February, R&D expenditures in 2021 will be slightly above last year, before going down again in the years after 2022.
Let’s turn to fixed costs. We are well on track to reduce fixed costs until 2025 by more than 20% versus actuals 2019. This is the commitment we gave last October. In 2020 a part of the reductions were achieved due to short-term and COVID-related measures. This year we work hard to replace those temporary measures by permanent and sustainable actions. Towards the mid of the decade an important driver for this this will be our initiatives fostering seamless End-2-End processes and digitization throughout all business areas: in sales & marketing, IT and finance.
This will allow us to reduce fixed costs also beyond 2025 – year over year, based on actuals, despite inflation. To sum it up: What does this mean for profitability? Let’s first have a look at our well-known “weather chart”. We introduced this last October at the MBSU to lay out our financial ambition for Mercedes-Benz for 2025. How do we rate this year’s performance with reference to this grid? The demand and contribution margin side is very favourable. Supported by our strong product line-up, customer demand, mix and pricing, can be rated as “sunny”.
However, from a supply constraint perspective due to the semi issue this does unfortunately not translate 1:1 into sales volume. Here we are rather still close to the “rainy” side. On fixed cost and funding, we are on track or even ahead of the curve. This is what you can see in our financials – as outlined yesterday at our Q2 disclosure: With a solid double-digit RoS adjusted in Q2 and a full year guidance of 10-12% this is a double-digit year – provided the semiconductor situation stabilizes. In the weather chart language, profitability-wise, our performance is on the “sunny” side. And we translate that performance also into Cash Flow, as you can see in the Q2 numbers.
So, what is our perspective on the journey to BEV? We are committed to the margin targets as outlined last year. The difference is: Last year’s targets were against a 25% xEV share by 2025. Now we are talking about these margin targets with an xEV share of up to 50% by 2025 and up to 100% BEV by the end of the decade. This is a statement of confidence that we will master the transformation successfully.
How is it possible to get there? Number 1: With the good starting point we have set so far in the year 2021 and with all the pillars of our refocused strategy further kicking in, our goal is clear: We want to move up our top-line and contribution margin . sustainably – in particular product mix and pricing. Number 2: We will substantially reduce our BEV variable costs. Number 3: We will double-down and extend our targets in terms of fixed cost reductions. Number 4: Capex and R&D will strictly be shifted from conventional and hybrid to BEV spending.
You see, we stepped up our commitment. Now you will ask me, what is our margin ambition? We believe, even in a BEV world Mercedes-Benz should be a double-digit company. And that’s what we shoot for. So, what's our take-home message for today? Yes, Mercedes-Benz is in great shape. But there is so much more potential. And we have a clear plan to unlock it. Therefore, we are transforming our entire company.
And these amazing cars prove that we are able to deliver on our promise: We will build the world's most desirable cars. And we have a lot more fantastic cars in the works ready to hit the road soon. In February, we introduced our plan to focus Mercedes-Benz on cars & vans. And now, our intention is to accelerate Mercedes-Benz into a zero-emission and software-driven future as the world's pre-eminent luxury car company.
And that's exactly what we are doing: Mercedes-Benz is getting ready to go BEV-only within this decade. Our entire team is determined to deliver. Mercedes will stay in the fast lane. Can we please do the Swedish winter thing one more time...?