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Mercedes-Benz CEO Warns of Market Uncertainty as EU Considers Easing 2035 ICE Ban
Potential shift from full ban to 90% CO2 reduction target forces automakers to recalibrate strategies
Renewed investment in ICE development creates duplicate costs and complicates Euro 7 compliance
Global manufacturers like Porsche, General Motors, and Ford face significant losses due to strategy shifts
Mercedes-Benz to replace EQ series with traditional designs for electric C-Class and E-Class models
Mercedes-Benz CEO Ola Källenius has expressed concern over the European Union’s recent moves to potentially ease its 2035 ban on new internal combustion engine (ICE) vehicle sales. Speaking at a recent S-Class launch event, Källenius warned that while the EU has slightly relaxed its electrification pressure, prolonged discussions without clear standards could significantly dampen market confidence. This unexpected shift has created confusion for automakers who had been pushing for a more gradual transition.
Shifting Regulations and Cost Implications
The EU initially planned to completely ban ICE vehicle sales by 2035. However, recent discussions have shifted towards a proposal to reduce carbon dioxide (CO2) emissions by 90% compared to 2021 levels, rather than enforcing a total ban. This change complicates automakers’ planning processes, as they must now determine which powertrains to maintain and in what quantities.
European manufacturers who had already halted ICE development now face the prospect of restarting engine research. This shift diverts capital from battery and software development back to engine production, significantly reducing cost efficiency. Additionally, automakers must comply with the stringent Euro 7 emissions standards set to take effect in November, further driving up engine production costs.
The uncertainty is forcing automakers worldwide to revise their strategies. Porsche has decided to redevelop ICE versions of its 718 model and Macan, which were originally slated to become fully electric. In the U.S., General Motors anticipates losses of 6 billion USD (approximately 8 trillion KRW) due to canceled supplier contracts, while Ford estimates costs of up to 20 billion USD (approximately 26.67 trillion KRW) associated with reverting to gas engines and delaying electrification plans.
Despite the potential regulatory easing, European environmental group Transport & Environment (T&E) predicts that over 85% of new cars sold after 2035 will still be electric. However, if plug-in hybrid (PHEV) and extended-range electric vehicle (EREV) adoption increases, vehicles with internal combustion engines could maintain up to a 50% market share.
Mercedes-Benz Adapts Strategy
In response to criticism of its EQ brand’s unique design, Mercedes-Benz plans to incorporate traditional sedan styling into upcoming electric C-Class and E-Class models. This move aims to appeal to more conservative customers.
Källenius emphasized that while manufacturers can adapt to market demands, maintaining a diverse engine lineup amid regulatory uncertainty is far more costly than following a single electrification path. The European auto industry now faces significant challenges in developing long-term strategies for the next decade.
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