“We want to be as fast as the Chinese”

Markus Schaefer joined Daimler-Benz as a trainee, in 1990. He then became a production engineer in 1991 and then a cost controller, paint shop, in 1993. Schaefer then held several positions in product planning until 1997, when he became project and plant manager for the CKD factory in Egypt, a joint-venture. Schaefer moved to the U.S. in 2002 as director of engineering in Tuscaloosa, Alabama. In 2010 he was named President and CEO of Mercedes U.S. International in Tuscaloosa. He became vice president manufacturing engineering for Mercedes passenger cars in 2013, and in 2019 became a member of the board of management for group research and cars development. In 2021 he was named chief technology officer. And it is under this condition that we interviewed him about the current moment of Mercedes, the main technological challenges and the strategies the company is adopting to be successful in an increasingly competitive automotive industry.

Whereas some car manufacturers adopted a dual model line-up (such as mb or vw) others chose to bet on hybrid architectures (BMW) which strategy has delivered the best results on how consumer demand has evolved in the last 5 years?

Markus Schäfer: It has been clear for us that being flexible was a “must”. A handful years ago nobody was able to predict the adoption speed of consumers on different powertrains… we could deliver good products, good technology with appealing design, but then there are external factors which we could not control. Such as the charging infrastructure, the incentives which come and go, the supplier chain disruptions… so we defined a manufacturing setup which would allow us to build both ICE vehicles and BEV on the same assembly lines. We did the best to deliver the first BEV with low consumption, high range, fast charging times and those were the EQE and EQS. But still, we have to continue to work on cost reduction as BEV vehicles are still more expensive than ICE vehicles.

Although premium car brands are probably a little less exposed to price pressure compared to mainstream brands, you are not immune to it. As MB chose not to enter the ongoing EV price reduction and cost reduction is probably another way to improve the balance sheet which is being affected but this is a difficult task as proven by the fact that your R&D budget increased from 8,5 to 10 billion euro from 2022 to 2023. What measures can you take to counteract this tendency? (reduction of model variants in the MMA platform? Reduction of diesel engines? Outsourcing engine development to Geely?)

Markus Schäfer: We have to pull all levers within our reach. On the product side, yes, it is about reducing complexity, less R&D investment into ICE (as we are not developing completely new generations but improving/updating them), even more module parts sharing among our 40+ models, a very conscious sourcing and refocus our global purchasing plan to achieve the best possible results. But we will never compromise our quality which is the basis foundation of our brand. The biggest cost block is the battery and e-motor and so a substantial chunk of our research is being applied to the teams working to come up with new chemistries which will allow us to be more cost-effective in the future. Batteries need to be cheaper and we are not where we want to be. That is also why in just a few weeks we will open our biggest and very advanced battery-lab in Stuttgart (after a couple of hundred million euro investment).

Will diesel PHEV stay in your portfolio for several more years? will Mercedes-Benz keep improving ICE well into the 2030s as your 50% EV sales share goal moved from 2025 to closer to the end of the decade?

Markus Schäfer: We will continue on our ICE but there will be less variants in the future. We have put together a central competence team to provide all the powertrains from diesel to 12 cylinders and AMG and they will be around after EU7, Chinese 7 regulation probably coming and a new Californian norm ACC2. The regulatory world will continue to evolve and so will our engines. Every combustion engine is electrified, minimum as mild hybrid, and then we have the PHEV, of course. We have no plans to phase out the diesel plug-in today.

Chinese brands have vowed to launch the first EV equipped with solid state batteries (SSB) sometime between 2024 and 2026 well ahead of what the western world industry was aiming at (2028-2030). Could this be a game changer should it become reality? Are you working to anticipate your SSB as well?

Markus Schäfer: We are intensively working in two directions. One is solid state batteries with two very capable partners, one in the USA and one in southeast Asia, and also working on the next level of “conventional” lithium-ion NCM batteries, with higher content of silicon on the anodes. In common, these two streams of research will lead to an increase in energy density and ultimately lighter batteries. These are two competing developments which have potential, in both cases, but I think SSB are still in a very early stage. Yes, they work well in laboratories and you can run it for some cycles, but another thing is to serve customers during thousands and thousands of kilometres with top reliability and fast charging continuous cycles. I don´t think we will be late with SSB, on the contrary, we think we will be ready to compete with anyone globally.

While you announced that you will have the technology as of next year on your MMA platform, it is somewhat surprising that so far there is no Mercedes-Benz EV in the market equipped with 800-volt tech. Why?

Markus Schäfer: We showed the concept in September in Munich and now in April in China but I think that this will be the right time to launch it because the charging infrastructure is not ready yet. It is a chicken and egg scenario, yes, but it´s not worth having 800-volt technology just for the sake of it. If the customer needs to have a booster in the battery that also gets charging from a 400-volt charger… it is all very cumbersome. And what really counts is the charging power/time and in our company we found solutions in the current 400-volt in the EQS to provide a top-notch charging experience. We will make it better tomorrow and we see a global commitment to 800-volt charging infrastructure, we are building our own charging hubs either by ourselves or with our partners Ionity and Iona in the USA. In a nutshell, I don’t think we are late, we are coming to the market in the right timing.

Regarding battery production, should we expect MB to go for more joint developed projects like ACC or more in-house development?

Markus Schäfer: On the research side, we are strongly investing on several fronts, like the Stuttgart chemistry research institute we will show the world next July. We don´t have to produce every cell battery and this is the area where we will get into different partnerships in order to be competent and cost-effective. Having said that, we have to control even better are the raw materials, which have to be procured as effectively as possible to get the best possible prices and adequate sources.

Right now, traditional car manufacturers are doing their best to speed up and streamline their vehicle and tech development processes to catch up with Chinese brands, who have overtaken them in several ways (it almost seems like they did it during covid when the world was not watching). Is it realistic to think a new model be developed in the future in just 2.5 years rather to the typical 4 to 5 years which are needed in the western industry?

Markus Schäfer: Definitely there is something which we can call “China speed”. The answer is simple: we have had an R&D footprint in China for a long time and we will intensify our activities there in the short-term future. Over the last two years we have almost doubled our R&D headcount, now with independent offices in Beijing and Shanghai with a clear target to understand customer demand, to take advantage of every important tech partnerships, etc. To play in that 2,5 year model development timing we must be under the same ecosystem of the Chinese competitors, we cannot do it in Germany. And once in this position, there is no reason for not matching the “China speed”.

When your company presented the EQXX its development time was considerably reduced thanks to the help of the F1 Brixworth team. Will such cooperations inside the company be more common in the future?

Markus Schäfer: I am taking Mercedes-Benz R&D partially to a separate unit, still in Sindelfingen, which will work together with the China R&D and that other “speed boat” we have in the company, such as the F1 Brixworth powertrain development division. We were two times Formula E world champions, we showed our competence in the development of e-motors and batteries and there is no reason why we should not use it in our best interest. So the EQXX got the final engineering work and optimization of this powertrain (increasing the efficiency, getting the weight down) to an extent that probably could not be done in Stuttgart. And now we are getting that powertrain installed on the future MMA platform vehicles, starting with the CLA.

As has your product planning/tech planning been affected by the stagnation of EV sales and the PHEV resurgence especially in China?

Markus Schäfer: Actually, no. We announced some time ago our long term investment plans as far as platforms are concerned and the recent market developments has not changed them. Going in the EV direction is the right strategy on the long run and even if market adoption will always vary from region to region but we have not changed our plan. There will be tenths of billions of euros going into the development on the electric side and not many new ICE cars being presented. The products will get better and will become more appealing to customers while the price differences will also be reduced.

Your Drivepilot autonomous drive (AD) system has beaten Tesla´s autopilot to become the first L3 certified tech in California and Nevada. Will that happen in other world regions? Will the same happen with L4, under which cars will start to be really autonomous?

Markus Schäfer: We did apply for L3 test licenses in China as it is not legal there yet, there is no final regulation. With the support of our Beijing partner we managed to get them but there is still a lot of ground to cover. And we are going through the same process in Shanghai and other major Chinese cities. But at the Beijing auto show last month we presented the point-to-point navigation system in cities which will be a huge step for Mercedes-Benz and a great benefit for customers on a Level 2++ (with the vehicle still under the driver´s control). It´s a huge investment and we go step by step to evaluate customers´ willingness to buy the more advanced ADAS systems. Now, by the end of this year, we will take another big step in Germany with the increase of speed from 60 to 95 km/h autonomous drive, which no other competitor has done yet, meaning we are pushing the envelope.

OEM expect in-car digital services to become a cash-cow on the long run but today it seems to be below expectations and it only generates some 3 percent of the revenue – according to Accenture – and that doesn’t even cover the tech development cost. What is the missing piece?

Markus Schäfer: We were conservative when we announced our strategy. Yes, in-car smart technology will eventually become a source of additional revenue but customers show a limited willingness to pay for these additional services. A Mercedes-Benz is a high-end product and our customer has high expectations concerning the standard equipment in terms of hardware and software. We have to keep the product fresh with over-the-air updates and interest the customer but we should not get carried away with it.

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