How to Decarbonize a Car Company, According to Mercedes’ CEO

Back in 2019 Mercedes-Benz announced that it would go fully electric by 2030 where markets allow, and the brand is rapidly heading towards that goal. Every new platform and powertrain developed by Mercedes starting from 2025 will be electric, with the current set of gas engines designed to last through the next few product life cycles until being phased out.

Even more importantly, according to Mercedes-Benz’s chairman of the board and CEO Ola Källenius, Mercedes will be completely carbon-neutral by 2039, a plan it calls Ambition 2039. This was derived from the Paris Climate Agreement, which aims for the world to be net zero by 2050. I sat down with Källenius at a roundtable in Vienna during the first drive of the new E-Class – still an internal-combustion car, but one with electrified powertrains – to learn more about Mercedes’ decarbonization plans, EV strategy, and overall outlook on the future of the automotive industry.

“Mercedes-Benz is a brand that stands for the promise of a better future, and that better future is fundamentally a zero-emissions business,” says Källenius, adding that the decarbonization goal will happen in just three product life cycles. He also believes that Mercedes could actually hit its decarbonization goal a little early, closer to the start of the 2030s than the end.

It’s not just people inside the company that want this to happen, either. “There’s not a single long investor in Mercedes stock that doesn’t believe the company needs to decarbonize,” Källenius says. “Even if there weren’t regulatory will, we’re at the point where the financial market made up its mind that a sustainable business strategy is the one that is more economically safe.” He adds that even investors with fossil-based revenue streams are heavily investing in new verticals.

Källenius also thinks aggressively pursuing decarbonization will let Mercedes stay nimble. “We already have strategic clarity; we know what the journey and destination is, and it’s zero emissions,” he says. “But during this transformation, which is more than a decade long and it’s difficult to judge exactly when and what will happen, we need tactical flexibility and we have that.” This means that when the industry gets to the point where the new technology unseats the incumbent technology and there is exponential growth, Mercedes needs to be (and already is) in a position where it doesn’t fall behind. Källenius describes Mercedes as being its own venture capitalist, as it’s in control over financing for its transition to EVs.

All of Mercedes’ global assembly plants have already been made powertrain flexible, so a shift to more EV production will be easy, Källenius argues. Mercedes recently transformed its Alabama facility to produce the EQE and EQS SUVs for global consumption, for example.

Also important to decarbonization is the manufacturing process. “The defining challenge of our generation is to take care of the CO2 problem,” says Källenius, “and it has to be from A to Z, all the suppliers, all our operations, the car itself and the car in use. The twin of the CO2 problem is a circular economy. How do we reduce the use of primary materials in the production of goods? It’s an even bigger problem to solve technologically and economically.” For most current car manufacturers the secondary material content – materials that have been used or recycled – is between 20 to 30 percent. Mercedes is targeting 40 percent by 2030. “That might not sound ambitious, but believe me, engineering-wise it’s unbelievably ambitious,” Källenius says.

The idea is to decouple economic growth from resource usage growth, especially when it comes to EV batteries as they are made up of precious materials like lithium, manganese and cobalt. Mercedes is building its own experimental battery recycling and research factory along with some partners, and prototypes have already been developed that can get recycling quotes into “the deep 90 percent” range. It’s also working with German chemical companies to go through every polymer category and figure out recycling options category by category. Källenius says that one day batteries coming back from vehicles will be “the biggest virtual mine in the world.”

You might think it would be hard to get Mercedes’ suppliers and partners on board with the Ambition 2039 plan, but according to Källenius that wasn’t the case. “When we defined Ambition 2039 it only works if all our suppliers go CO2 neutral as well. If you’re not on board with the program, you’re not on board,” says Källenius. “If all things are equal from performance to quality and price, in a competitive bid if one company has a better plan for decarbonization than the other, that could be the kind of thing that tips the scale.”

Once a year Mercedes holds a conference where it invites 500 of its most important suppliers to go over the year’s results and plan for the future, and at the first one in 2019 after announcing Ambition 2039 the company told its suppliers that it expected each one to come up with an equivalent plan. “The reaction back then from some of the more progressive companies was ‘welcome to the club, you are preaching to the choir,’ and for many in the room it was ‘oh shit, these guys are serious,’” remembers Källenius. “Now I would say 90 percent of our suppliers have a plan.”

Some of Mercedes’ steel suppliers are already deep into carbon-free steel production, with the first results to be in production cars in less than two years. One of the companies, the Swedish firms H2GS, should be carbon-free by 2030 thanks to the use of hydroelectric power. As another example, Mercedes is working with an aluminum producer to reduce its carbon footprint by 70 percent. “Ten years ago, pretty much everyone around the table would’ve said ‘that’s not possible, it’s not gonna happen,’” says Källenius. “Now it’s happening.”

Källenius says the two core technologies driving the shift to EVs are the electric drivetrains and the software, and vertical integration is extremely important to both. For instance, Mercedes owns everything about its powertrains all the way down to the battery chemistry.

The vertical integration is tougher when it comes to the digital side of things. Traditionally electronic architectures in cars have been decentralized – when automakers buy an ECU they buy an entire software package along with it, and the car manufacturer then integrates the functionality. “We said we need to control the brain and central nervous system of the car,” says Källenius. Having this much centralized control over the software means updates and improvements can be made much quicker than before.

The new E-Class is the first Mercedes to have the updated MBUX operating system and cloud infrastructure, in which every single line of code has been programmed by Mercedes for the first time.

Like nearly every other carmaker, Mercedes recently announced that its future EVs will use the NACS charge port pioneered by Tesla. NACS will soon become an SAE standard, which Källenius says played into the decision to switch. “We always do what we think is best for the customer in terms of convenience, and the most likely scenario is NACS,” says Källenius. The first NACS-equipped Benzes won’t start coming out until around 2025, and in the meantime the brand will offer an adapter for existing EVs with the CCS charge port.

Automakers have never historically worked on gas station infrastructure, leaving that to energy companies, but in the electric era that is changing too. Accessible fast charging is potentially the largest pain point for EV customers, so more car companies are figuring out their own solutions to help aid the lagging infrastructure. Later this year Mercedes will open its first high-speed charging stations in the US, with 10,000 coming to America, China and Europe by the end of the decade as part of a multi-billion-dollar investment. The switch to NACS will help in the meantime, allowing Mercedes EV drivers to use Tesla’s expansive Supercharger network. “While we’re building our charging infrastructure, why not offer the Mercedes customer access to the 12,000 chargers built by another company,” Källenius says, “it will create more convenience and maybe take away a little bit of doubt for people that are thinking about buying an EV.”

When it comes to passenger cars Källenius says EVs are the clear way forward versus hydrogen or other synthetic fuels, but those solutions could have other uses. Shipping is one of the biggest issues when it comes to decarbonization; for mass-volume models it’s easy enough to build a local factory in China or the U.S., but for a low-volume model like the SL sports car it’s not economically feasible to have multiple production locations. Mercedes is maximizing its use of shipping by rail, especially in countries like Germany where it’s more feasible, and it’s experimenting with using hydrogen for semi trucks. Overseas and air shipping is even tougher to decarbonize, but synthetic fuels could help with that in the future too.

Källenius just celebrated his 30th anniversary at Mercedes, and he says right now is the most exciting time to be in the industry because everything is changing.

“We have to reinvent the original invention.,” he says. “We have got to be Gottlieb Daimler and Karl Benz again.”