Mercedes-Benz Group AG (MBG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. This is Steffen Hoffmann speaking. On behalf of Daimler and Mercedes-Benz, I'd like to welcome you, on both the telephone and the Internet, to our update where we want to inform you about Mercedes-Benz' move to join ACC. Thanks that you could make it to join us in this call even, as we invited, somehow, on short notice. We will now have roughly 30 minutes for this session on our ACC engagement. And we are very happy to have with us Ola Källenius, Markus Schafer, and Harald Wilhelm. In order to give you maximum time for your questions, Ola will begin with an introduction directly followed by a Q&A session. Now I'd like to hand over to Ola.

Yes. Thank you, Steffen, and good morning, everybody. At the end of July, we presented our comprehensive plan to transform Mercedes-Benz into ultimately, an electric vehicle company. And today, we announced the next milestone in this endeavor. We're taking equity stake of 33% in battery cell manufacturer, ACC. Stellantis and TotalEnergies and us, we will become equal shareholders. Together with ACC, we're going to develop and build next-generation battery cells and modules tailor-made to the specific requirements of Mercedes-Benz. This partnership allows us to secure supply, take advantage of economies of scale and also, of course, provide our customers with superior battery technology. Moreover, we will help to ensure Europe remains at the heart of the auto industry, even in an electric era. With us, as a shareholder, ACC aims to more than double capacity at its European sites. And our objective is, at least, 120-gigawatt hour of cell capacity by the end of this decade. And we will step in and engage at around the mid of this decade with regard to our vehicles. The entire project will require an investment of more than EUR 7 billion, which is a combination of equity, debt and subsidies. We will invest a mid-three-digit million euro amount next year. In total, our investments are expected to remain below EUR 1 billion. And these are also included in the financial framework that we presented on July 22. This new partnership gives us access to top-notch battery cells at highly competitive costs, and at the same time, it will support our ambitious EV ramp-up plans. By the end of the decade, as we have said, Mercedes-Benz will be ready to go fully electric where market conditions allow. And I think creating this new battery champion is further proof, we're not going to wait for a transformation to happen. We will help make it happen. Looking forward to your questions.

Thank you very much, Ola. Ladies and gentlemen, you may ask your questions now. The operator will identify the questioner by name but please also introduce yourself with name and the name of the organization that you are representing before asking your question. [Operator Instructions] Before we start, the operator will again explain the procedure.

[Operator Instructions]

And the first question goes to Tim Rokossa.

It's Tim from Deutsche Bank. I have a couple of questions just to really understand the context of this investment itself. You say that the project will require about EUR 7 billion of investments, but your injection is only EUR 1 billion. Can you put a little bit more flesh to those numbers? Is the rest your partners? Is the rest subsidies? And also, considering you probably need more cells in Europe, will this remain your only investment over here and the rest is covered through regular purchasing? Or is there more to come? And then, secondly, if we move outside of Europe, in China, you obviously have CATL and Farasis, should we plan anything for the U.S. and when?

Maybe I get started with the first question, Tim. Well, so that investment of about EUR 7 billion, I mean, over time refers to the ACC scope. That's the entire investment as we see it with our new partners. In terms of the funding of that EUR 7 billion, Ola, I mean, alluded to it, it will be a mix of share of debt, equity and European union support, or call it, subsidies. The detailed share of that, I think -- I mean, will be hammered out, I mean, over time and will obviously develop. With regard to our own engagement, Ola mentioned, it will be below EUR 1 billion over time. There will be more bullet payment, I mean, pretty shortly, after closing, which we expect to be rather in the early days of 2022, and that should be in the order of magnitude of three-digit million. And then over time, I mean, incremental equity might be injected in the proportion of debt, equity and subsidies, as I alluded to before. But please note, I mean, that investment of below EUR 1 billion refers to the ACC scope. Any other, I mean, investment is part of contractual arrangement as we have it with our current main partners, and as we might do it in the context of the ramp-up plan with arrangements yet to come, that is separate.

And Tim, as you mentioned, we already have strong partnerships. You mentioned 2. Those aren't the only 2 that we have. So it's not like we're starting from scratch now. Some of that capacity has already been installed, and pretty much the path towards 2025 has been secured. For the U.S., we are in discussions with different partners of what the localization option will be but has not yet been decided.

Good to see you're making progress and good you're keeping this local.

And we continue with Patrick Hummel from UBS.

It's Patrick from UBS. Also, 2 questions from my side, please. First one, you've decided to go for a solution that does not include an established cell maker as a joint venture partner. I'm sure you weighed the pros and cons of that decision. Can you just give us a short summary why you think this structure or this form of entity, a purely European solution is a better one as opposed to just entering a joint venture on European grounds with an established Asian cell player? And my second question, where does ACC stand in terms of securing the raw materials? We're seeing pretty volatile price environment or, in fact, prices for some raw mats have been up a lot. These are difficult supply chains from an ESG perspective, and I guess, Mercedes has the highest standards here. So I'm just wondering, where is ACC in terms of securing the raw mats required for what will probably be a very steep ramp-up for a couple of years out?

Thank you, Patrick. Of course, we have looked at the different initiatives that are going on. And I have to say, it's really positive to see how much dynamism is developing in Europe on the cell front from my Swedish friends to other initiatives that are going on as well in Europe. We looked carefully at these, and in the discussions that we had with Stellantis and with TotalEnergies, and also the ACC management, we felt that this offered the best option for us. Let's not forget that Saft has been in battery technologies, I think, for 100 years. And in fact, it was Mercedes and Saft that launched the first lithium-ion production battery ever, I don't know, is it 15 years ago? Yes, 2009, so 12, 13 years ago. So we know this company. We have, ourselves, amassed an enormous amount of know-how over the years in our R&D, as have they, over the last years. And Stellantis, especially with their operational skills and excellence, I think it's such a -- it was such a good mix. And this also allows us here to step in deeper. Of course, we work in R&D with our current Asian suppliers. So we work hand-in-hand with them and have deep insight to what we need for Mercedes. But here, we go one step further. Here, we can take all those activities and investments that we're, ourselves, pouring into our new e-campus in Stuttgart and really leverage them in a bigger partnership. So with a range of attractive options, this looked, for us, like the most attractive option. And that's why we're going to bet on ACC to become a European champion in the cells space. With regard to sourcing of raw materials and so on, of course, ACC is working on this. But I don't think we, as a shareholder, should speak on behalf of them. So they should then present their plans, and I will revert them to their management team.

So Ola, if I can just follow up here. Does that mean that you're not taking care of this as Mercedes-Benz, this is going to be ACC's job?

Now, that would be wrong. If you're a 1/3 shareholder, of course, you will take care of that, your shareholding, and the company that you're engaged in will do this in the right way. And as you saw already in the presentation, end of July, we, ourselves, are now looking into the sourcing change -- of raw materials. And we have made one major deal already with Albemarle on the lithium side and are looking at others as well. So the knowledge that we have gained throughout this process, of course, we will share that with ACC, but it's not like they're not thinking about this. They're very aware, and they're working on it as well.

Okay. And the next in the line is José Asumendi from JPMorgan.

José, JPMorgan. Just a couple of questions, please. Can you talk a little bit about battery recycling? As you ramp up battery capacity in the coming years, how is ACC going to take care of this? And would you create a different entity outside of the ACC collaboration or we're going to stay within ACC? And second, Ola, can you talk a little bit about battery chemistry? How do you think about the right composition, the right technology, the right chemistry behind the battery? And also, you have a stake in a solid state supplier. Could you bring this -- the stake you have in this company into ACC, or any collaboration or any outcome of the solid state investment into ACC as well?

Yes, José. All things that you are mentioning are the things that you need to address as a cell maker, and all of those things are on the cards. With regard to recycling, for us, as Mercedes, but clearly for ACC, to make this ultimately a circular value chain is definitely a target. And the latest recycling methods that are being developed, they look promising that we should be able to, and I'm talking globally here now, to have recycling quotas of those precious materials higher than 90% once we get to that stage. I'm going to pass the chemistry question to Markus Schafer, that is here. And with regard to solid state, ACC has also stated that they're pursuing technology paths in this space as well. This is too early to be specific, but so are we. And I'm sure that we will intelligently put our heads together around this thing. Maybe Markus, on chemistry?

Yes. On the chemistry side, we're moving to our next generation of battery chemistry. So we're going to the next level, I think we are able to provide highly competitive batteries today in the EQS, for example. But we're going to the next level with ACC. It's a production in ACC, but we're doing joint development. So we're using our development centers here in Germany and the new e-campus in Stuttgart, and combining our technologies, joining technologies with the R&D centers of ACC. So best of 2 worlds will end up in our next generation of batteries with high energy density, of course. So in watt-hours per liter and per kilogram, we are improving significantly here. We're moving more to high silicon and to new recipes and new materials. So we're expecting the next level with this next generation of batteries we're doing with ACC together.

And the next colleague in the line is Horst Schneider from Bank of America.

I have got a couple. I mean, you made some comments on ACC and technology now already, but I still want better to understand why you have finally taken ACC. So was it just a lack of partner? Or ACC was really the best partner and you figured out that they have got a technology advantage and then you can source batteries here cheaper than as compared to other players? Or you just wanted to reduce, for example, dependency on the Asian players? I just want to understand why ACC. Then, the other question that I have relates to the Farasis deal because it's still in the room that you aim to build up this battery plant in Bitterfeld. So is that still on the agenda? Or does this deal basically then replaces, in a way, the Farasis deal or just amends it? Yes, these are my 2 main questions.

So I'll start kind of from the top. We have very, very strong relationship with suppliers in Asia. 2 of those partnerships are CATL and Farasis, and they're yielding very good results. You can see the performance of the vehicles that we're putting into the market today. Those are based upon the work that we have done with CATL and with Farasis. And it goes without saying that these strategic partnerships will continue, and we will build upon them. No doubt whatsoever. However, as we mentioned in the presentation in July, we said that in a world that, in our view, is going to go all electric, we think it's wise to spread sourcing or put another leg on the stool of that sourcing. And we think that Europe should be a player in this field. So to complement the relationships that we have in Asia, to build up a European champion, we think is the right move for us, and we think is the right move for the European automotive industry. Why do we pick ACC? Let me start by saying this, every single serious venture in the cell space in Europe has approached us and wants to work with us. So without any exception, we could pick anybody we would like in Europe to work with us because we're an attractive brand, and we have a very progressive strategy. So we have gone through a thorough evaluation of all the options, which are several, and looked at from a technological point of view, complementing skills point of view, industrialization, cost structures, financing model, I mean, a 360-degree review, what do we think is the best for us. And in my conversations with Carlos Tavares and Patrick Pouyanné from the other 2 players, and my team's conversations with the ACC management team, we are convinced that this, at this juncture, for us, is the best option. And that's what we're going in and doing this. But we will, of course, on the way to 2030 and beyond, remain open for sourcing. But this is a serious and big initiative for us in Europe and will cover a significant amount of the gigawatt needs that we will need here. With regard to Farasis' plans, Markus is on the Board of Farasis and speak to them all the time. Why don't you say a few words about them?

Well, as we are reading, sometimes some updates on Farasis, the facts are that the performance of Farasis in our vehicles is really outstanding and continues to be outstanding when it comes to range, cost and charging time. So a very, very important partner. So we're expanding capacities right now in the existing plant rapidly. But it's up to Farasis finally just to focus their resources. They need to focus their resources. They're a young company. They are growing rapidly at the moment. And they have to make their decisions about their next steps in Europe, and they will, in the future. So we have to leave it up to them and their growth path and their capabilities to take the timing -- the right timing to announce the next steps. But most important is the supply is secured for us here and the right technology is available to us.

And we continue with Stephen Reitman from Societe Generale.

Yes. My question is about the costing on the project. More than EUR 7 billion by 2030 to establish capacity of 120-gigawatt hours. It seems relatively good value when I consider that looking at past press release from ACC, I'm looking at one from September last year, in which they were talking about, over time, building up to 48 gigawatts of capacity at a cost of about EUR 5 billion -- or more than EUR 5 billion. So can you explain the confidence about the figures getting up to more than doubling of the 48-gigawatt capacity at a relatively low price?

Stephen, you will see a significant scale effect where you make initial investments into R&D and all sorts of things that you need to get going, once you then duplicate and replicate that and ramp up to more gigawatt hours, they feel that there's going to be a significant scale advantage. And we're looking at the numbers as well. I mean, it's not like we don't have any experience. We've been doing this with several other suppliers. So we know roughly what the numbers should be. And even some years ago, we have built our own plant, so what the equipment cost and so on and so forth. So the plan with the EUR 7 billion from today's point of view to get up to 120-gigawatt hours looks robust.

And we continue with Harald Hendrikse from Morgan Stanley.

It's Harald. Great deal. Very practical decision, it seem, as I think we're starting to get used to. My question a little bit is kind of interesting, Mercedes cars are very different from Stellantis cars, especially in Europe. So now we're in the same joint venture. I'm assuming we're going to have the same cells and the same chemistry. So firstly, to what degree would you have a choice to change the chemistry for Mercedes, for example, versus a Porsche? Secondly, if we're going to share cells, which is incredibly sensible, but does it also then start to make sense to start thinking about sharing modules, and how should we think about that? I think all the OEMs globally are sort of investing in the same things at the moment. And I suspect there might be others in Europe or elsewhere who might want to join the joint venture as well. So on top of that, would you think about sharing modules at some stage? And lastly, would you take new partners into the venture? It seems 120 gigawatts is a pretty ambitious target. But obviously, Europe needs probably 1,000 gigawatts by that time. So it seems that this venture could even get bigger. Would you take new partners into the venture to maybe pay for further expansion?

I'll start with the first thing, and this is kind of a truth for any cell supplier, including ACC and also, if you take a CATL, that more or less delivers to every OEM in the meantime. Each OEM has to decide what they need and what their technical requirements are in terms of performance, range, charging time, et cetera, et cetera. So we very specifically, with our cell suppliers, today, go in and bring our recipe to the table in a way, even though the cooking method is a common denominator in the NMC world. So we will do the same thing with ACC that we're doing with the others that we're working with, that we will specifically look at what we need and make sure that we get that. If another manufacturer decides to buy equal -- or the same performance per liter, then, of course, you have also economies of scale there. But that goes for cell supply today and cell supply tomorrow. So for competitive reasons, we don't share our plans with Stellantis, nor do they share with us. They were our 2 customers, and the technical teams will work with ACC in a normal supply partner fashion. With regard to where you take -- where -- with regard to where you take a third-party business and how you go further. Now we have put together this plan. We have put in our demands. Stellantis obviously, have put in theirs. And where it goes from there, I think it's too early to say now. But just with the engagement that the 2 of us are bringing to the table, it's quite sizable. And then time will tell how far this can go.

Okay. And sorry, on the modules, would -- does it make sense? Or am I taking it too far right now?

Yes, I would say it depends. We have a modular strategy for our vehicles that fits into the several different models on one architecture. So I honestly don't know what others do, but we will make sure that we have a very intelligent scaling and module strategy for Mercedes.

And we continue with Henning Cosman from HSBC.

I just had one more. Thank you for giving all these numbers in the press release. I'm just trying to make a little bit more sense of them when you talk about the 8 factories that you're going to be needing 200-gigawatt hours. I imagine that means 4 factories for yourself in -- or you say, 4 factories in Europe. So supposedly half of that. If you get half of the 120 gigawatts of ACC, there's still a balance of 40. Can you just sort of talk about the balance a little bit? Is the remainder just to come from sourcing? Or do you literally mean you want to build 8 giga factories, meaning, over time, you're going to be replacing the existing supply arrangements? Or are you thinking about doing that with your existing partners, but you want larger equity stake, similar joint venture structures to get a better handle and supply security globally as well. Can you just talk about that a little bit more, please?

In our presentation in July, I don't know if you had the opportunity to see it, we have already established supply relationships. Obviously, you're not going to throw away the factories that we have built. There will be technological evolution. But if we want to go all-in on electric, we need something like 200-gigawatt hours, which is way beyond what we have already set up for the path to 2025. So we're going to need more. So it's not about replacing one that was just built. This is one piece of the puzzle with ACC on the path to those 200-gigawatt hours.

And the next one in the line is Kai Mueller from Barclays.

Maybe just to add what Henning was just asking. If you think about these relationships going forward and this 120 gigawatts capacity that you have in this JV, is it fair to assume that it's 50-50 split between the 2 OEMs taking part in that, Stellantis and you? And then the second question is we talked a little bit about the chemistry, and we all know that Stellantis is focusing very much on NMC. You are doing NMC as well but you've mentioned in July, the potential to do LFP 2.0. Would that JV also focus on that? Or are you looking at other providers for this? And then the last question, just when you think about the -- how vertically integrated this JV is, are you really focusing solely on the cell production? And are you doing the packaging yourself? Or what is actually the output of this JV all the way to your production line?

So individual production volumes are not being disclosed, and ACC will not do that, of course. If you have -- if you start with 2 customers, then you can speculate about shares, obviously, but that's not being individually disclosed. And in terms of what level of vertical integration, you can do cells, you can do modules. So both of those things are on the table. And with regard to technologies, our initial protocol with ACC will be focusing on the NMC technology.

Ladies and gentlemen, thank you for your questions and for being with us today. Thank you very much to Ola, Markus, and Harald. Now, IR remains at your disposal to answer any further questions. To all of you, have a great morning, great afternoon, or great evening, and we look forward to talking to you soon. Thanks, and goodbye.