Mercedes-Benz CEO Ola Källenius: Reinventing the Three-Pointed Star

For more than a century, the auto business has taken one thing for granted: The overwhelming majority of its products would run on gasoline or diesel. The industry’s entire business model, from the way vehicles are engineered and made, to the way they’re marketed and sold, has been based on that single, fundamental premise. But now, that’s no more. Today everyone in the industry is talking about an automotive future without the internal combustion engine. It is transitioning towards the mass production and sale of electric vehicles at lightning speed, and more than a few legacy manufacturers with long and successful histories have for some years openly talked of producing nothing but electric vehicles by the end of this decade.

That sounds a long way off. But the end of the decade is now less than 90 months away. And consider this: The average auto loan term for a new vehicle in America is 68.6 months and the average auto lease term is 35.3 months, according to financial data firm Experian. For Americans who regularly buy or lease a new car, truck, or SUV, having only EVs to choose from is perhaps merely one or two transactions away. But is that really going to happen?

Mercedes-Benz is one of those legacy automakers that has said it is going all-in on EVs by 2030. To find out what that means, and how the company that essentially invented the internal combustion engine-powered automobile plans to execute the most dramatic transformation in its 130-plus-year history, we sat down with Mercedes-Benz CEO Ola Källenius at the launch of the 2024 Mercedes-Benz E-Class. Here’s what he had to say.

On going all-electric by 2030: “What we have communicated is that all brand-new vehicle architectures from 2025 forward will be electric only. By the end of this decade, we will be able to serve markets that are ready [for EVs] from S-Class to entry level models. If for regulatory reasons or market dynamic reasons, the market goes either completely electric or partially electric, we will be ready. We have not announced the date when the last internal combustion engine Mercedes-Benz will go away, but we have put our capital allocation and engineering resource into preparing the company for a full EV lineup.” But Mercedes-Benz is not abandoning internal combustion engines – yet.

“We will make our internal combustion drivetrains ready to go into the 2030s, and then we will see what the market dynamics look like. But we will hit a point in the second half of this decade – from 2026 and 2027 – where investment in internal combustion engine development will be significantly lower. What we don’t have planned is that we would then start a complete new internal combustion engine development program in the early 2030s for engines that would appear in 2035 to 2042. That we don’t have on the cards.”

The tipping point in favor of EVs has not arrived: “It’s difficult to judge exactly when what will happen, so we need tactical flexibility, and we have that. Should we get to the point where the new technology finally unseats the incumbent technology, that could be an existential threat, so we believe we need to put Mercedes-Benz in the position not to miss that point. If it takes a little bit longer [than expected] it’s okay. We’re our own venture capitalist. We’re paying for this transformation from our own cashflow.”

Battery electric vehicles currently offer the best way to get to zero emissions cars: “If we talk about the technical options at the moment, to go zero emission the efficiency from a fossil-free source of energy to wheel on an EV is equal to or greater than 70 percent. It’s just an unbeatable energy conversion. In a fuel cell you have to do electrolysis [to get pure hydrogen], then store, compress, or cool the hydrogen to make it liquid. In the fuel cell stack, it’s then converted back into electric energy which then goes to the wheel. The efficiency is maybe 20 to 25 percent. Synthetic fuel manufacturing needs industrial scale direct air capture of CO2 out of the atmosphere otherwise the cycle doesn’t work. And you’re down to an efficiency of 10 to 12 percent.

Fuel cells could make sense for heavy trucks: “I can see fuel cells being used in heavy commercial vehicles, and the guys at Daimler Truck are working on them. For a class 8, 40-ton truck driving 600 miles a day, the battery [for an EV drivetrain] is too heavy and has too much variable cost. And you only need hydrogen fueling stations in geographically strategic places along the interstate.”

CO2-free synthetic fuels for internal combustion engines will be needed in the EV era, and Mercedes will use Formula 1 to help develop them: “If we go all EV or mostly EV, and fuel cell for heavy trucks, by the end of the 2030s, we’re still going to have 1.5 to 2 billion ICE vehicles on the road. The carbon burden of those vehicles needs to be lowered to meet the 2050 [net zero CO2 emissions] target, and either carbon reduced or carbon-free fuels for those vehicles would make a whole lot of sense. For 2026, Formula 1’s new powertrain regulations mandates CO2-free fuels, so we’re going to use Formula 1 to develop one with our fuel partner. It will be an extreme motorsport fuel, but the underlying technologies are kind of the same.”

Mercedes-Benz will produce its own e-drivetrains and develop its own software: “If we talk about the two technologies that are driving transformation [in the auto industry] one is the e-drivetrain, and the other is software. In those two domains we have decided we need vertical integration. They are something that we need to own. We need to understand them and own them.”

E-powertrains are a riskier business proposition than internal combustion engines: “The electric drivetrain has higher variable cost than the internal combustion engine powertrain that we have been used to. Thus, we have a more than a technical and industrial challenge: we also have an economic challenge. How do you make sure that you make the same margins? You have to work on your fixed cost. You have to work on your capital spend. You have to create new business models.”

Mercedes-Benz software will define future Mercedes-Benz vehicles: “We know how to do drivetrains, even if it’s a different type of drivetrain, and we’ve been in chemistry research for batteries for 20 years now. Software was bigger decision, because the way electronic architectures have been done for the last 30 years has been decentralized: The vehicle manufacturer has been the ultimate integrator of all sorts of functionality for the driver or for the passengers. That era has come to an end. We need to control the brain and the central nervous system of the car, and we need to be the architect of that stack.”

Creating and owning its software stack will allow Mercedes-Benz to partner with third party software companies: “We’re going to develop the next-gen auto maps with Google. It will be a joint venture between Mercedes-Benz and Google to show what mapping navigation should look like in the car of the future. We’re working actively on this now.”

Re-inventing Mercedes-Benz is essential: “In the past you could say, if the next S-Class is just better than the previous one, if you keep your costs under control, you have a ticket to success. Now everything is up in the air. Just because you have this fantastic brand, this pedigree, this tradition, 100-plus years of success, you don’t have a ticket to the future. You must earn it again. So, we get to be Gottlieb Daimler and Carl Benz. We have to reinvent the original invention.”