Källenius will have a tough job steering Daimler into the future

Daimler's next CEO will have a tough job to restore margins at Mercedes-Benz, current boss Dieter Zetsche said last week as the German car maker launched a new luxury electric car to rival Tesla.

Zetsche, who last week handed over the top job to 49-year-old Swede Ola Källenius, is credited with having returned Mercedes-Benz to the position of top-selling luxury car brand in 2016.

He said the German luxury car maker needed to find a way to rebuild margins after research and development (R&D) costs at Mercedes-Benz ballooned.

"There are many challenges ahead. We are in a situation of an economic slowdown. It is not going to be easier going forward," he said on the sidelines of the launch event near Oslo.

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Pressure to develop electric and autonomous cars has led R&D costs at Mercedes-Benz passenger cars to rise to €14bn (R228bn) from about €8bn (R130bn) four years ago, Zetsche said.

At the same time, China, the world's largest car market, has seen sales momentum slowing for nine months in a row, with a 5.2% fall in sales in March.

Mercedes-Benz's EQC large electric car will hit showrooms this summer, years after Tesla launched its Model S in 2012.

Daimler has been cautious about embracing mass production of electric vehicles at Mercedes-Benz amid concerns about operating range and customer acceptance.

The company took a 9.1% stake in Tesla for about $50m (R730m) in May 2009 to learn about battery technology, but sold its stake for a $780m (R1.13bn) profit in 2014.

Daimler launched an electric car under the Smart brand in 2010, but waited until 2014 to build an electric Mercedes-Benz B-Class.

Daimler, like other manufacturers, has struggled to make electric cars profitable, although the cost of battery packs is expected to fall as they invest in ramping up battery cell production.

ING analysts say the total cost of ownership, including fuel prices, could reach parity between electric and combustion engined vehicles by 2025.

In an effort to make a profit with electric cars, Daimler has opted to manufacture the Mercedes EQC in a way that enables it to be built on the same production line as a combustion engined car, retooling existing plants.

Daimler is investing more than €10bn (R163bn) to expand the electric EQ model range and is building battery cell production facilities.

The Mercedes EQC will have an operating range of 445km-471km, with a base version costing below €60,000 (R976,000) to make it eligible for Germany’s electric car environmental bonus.

Zetsche said Daimler's future hinged on making electric cars profitably.

Asked whether Daimler was too late to the electric vehicle trend, Zetsche said: "For the past 40 years I have heard that German manufacturers have missed all the important trends. But apparently customers still like cars from manufacturers that have missed the boat."

Zetsche, an engineer nicknamed "Dr Z" who joined the company in 1976, is due to become chairman of the supervisory board in 2021, following a standard two-year cooling-off period.

Zetsche took over as CEO of DaimlerChrysler in 2006 and took the decision to sell Chrysler, returning Mercedes to the top selling luxury brand globally in 2016 and defending the title ever since.