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Mercedes Benz Scales Back Production of the Electric EQC Due to Battery Shortage

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【Summary】German business publication Manager Magazin reported on Thursday that Mercedes Benz parent Daimler has been forced to cut production of the EQC electric SUV by half, from 60,000 units to 30,000 due to the short supply of batteries from its Asian supplier LG Chem.

Eric Walz    Jan 23, 2020 1:05 PM PT
Mercedes Benz Scales Back Production of the Electric EQC Due to Battery Shortage
The 2020 Battery-Powered Mercedes Benz EQC

As global automakers ramp up development of new electric models there is a growing demand for lithium-ion batteries, most of which come from Asian suppliers

German business publication Manager Magazin reported on Thursday that Mercedes Benz parent Daimler has been forced to cut production of the EQC electric SUV by half, from 60,000 units to 30,000 due to the short supply of batteries from its Asian supplier LG Chem. 

Over the past several years, German automakers, including Daimler, have entered partnerships with Asian suppliers to ensure that they have access to a steady and reliable supply of batteries for their future electric models. However, demand still outweighs supply.

Daimler was aiming to sell around 25,000 EQC vehicles in 2019, but only managed to build around 7,000 as a result of the battery shortage, Manager Magazin said.

Currently most of the world's lithium ion batteries are produced by a Asian suppliers. Leading companies include South Korea-based LG Chem and Samsung SDI, Chinese companies Contemporary Amperex Technology Co. Limited (CATL) and BYD, as well as Japanese firm Panasonic, the supplier to Tesla. 

Daimler is blaming electric automaker Tesla for its battery shortage. Daimler's works council chief Michael Brecht told Manager Magazin that one of the reasons the automaker is struggling to meet battery demand is Tesla's purchase of Grohmann Engineering, an industrial automation specialist hired by Mercedes-Benz to build up its own battery manufacturing capacity. 

Tesla purchased Grohmann for a reported $150 million and closed on the deal in Jan 2017. At the time, Tesla chief executive Elon Musk said it was the most significant acquisition in Tesla's history. Grohmann expertise in automation helped Tesla to launch the Model 3, its most important mass-market car.

However, Tesla's acquisition of Grohmann caused problems for Daimler which was in the midst of ramping up EV battery production at its subsidiary Deutsche Accumotive. The wholly-owned subsidiary of Daimler develops lithium-ion technology for hybrid and electric Mercedes-Benz vehicles. Since production began in 2012, more than 75,000 lithium-ion batteries have been delivered, Mercedes said.

The battery shortage facing Daimler is shared among European automakers that are under pressure by the EU to reduce carbon dioxide emissions from their fleets. Since 2015, the target was set at 130 grams per kilometer.

European automakers are facing huge fines next year if they fail to further reduce carbon dioxide (CO2) emissions to an average of 95 grams per kilometer by 2021. The new reduction targets took effect on January 1. 

The figures are a fleet average, based on the type of vehicles produced. Automakers have been given individual targets based on the weight and size of their vehicle fleet, meaning that manufacturers of heavier cars are allowed higher emissions than manufacturers of smaller, more fuel efficient cars.

Daimler, for example, had average fleet emissions of 130.4 grams in 2018, but the automaker needs to hit a target of 103.1 grams per km by 2021 or face big fines. Failure to do so will result in a fine of 997 million euros ($1.1 billion), London-based consulting firm PA Consulting said in a report released last month.

The launch of the highly-anticipated electric EQC has also been hindered by production problems, including a recall last October after Daimler identified a potentially defective bolt in the differential. The recall affected around 1,700 vehicles.

After the news was reported by Manager Magazin, Mercedes denied it is facing a battery shortage. However, the company did say that it was cutting production of EQC electric SUV by just 20% to 50,000 vehicles.

In December 2018, Daimler announced a $23 billion commitment to purchasing battery cells over the next decade to ensure a reliable supply of EV batteries is available.

Wilko Stark, the head of Procurement and Supplier Quality at Mercedes-Benz, said the shift toward electric cars has made the automaker more dependent on battery cell chemistry from outside the company, mainly from China.

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