Why Mercedes thinks entry-level EV buyers will accept shorter range

Mercedes-Benz will shift to cheaper but less powerful batteries to contain soaring prices for some metals in its range of entry-level models.

The automaker will use lithium iron phosphate batteries for its next generation of models such as the EQA and EQB from 2024 and 2025, CEO Ola Kallenius said in an interview in Atlanta.

The chemistry avoids using pricier nickel-based batteries that deliver performance and range in models such as the EQS, the full-electric version of its flagship S-Class.

Kallenius is betting consumers will accept shorter driving ranges for cheaper models as prices for key materials rise.

 “We think there will be a lot of urban-oriented customers that do not need the E63 AMG,” Kallenius said, referring to Mercedes’ performance sedan. “For those entry-level positions, in the future, we are looking at” lithium iron phosphate batteries, he said..

Mercedes is plowing more than 40 billion euros ($47 billion) into electrifying its product range this decade. Its plans include building battery cars on three EV platforms from 2025 and setting up eight battery factories worldwide with partners.

Most of the auto industry relies on nickel and cobalt in lithium ion batteries to boost EV performance. Yet supplies of both materials are constrained. Nickel, which helps provide power and range, is also prone to fire, a risk the industry is spending billions to control.

Tesla CEO Elon Musk said last week the automaker is shifting to lithium iron phosphate batteries globally for standard-range models. Tesla uses LFP batteries in China supplied by Contemporary Amperex Technology Co., or CATL, which has delivered methods to eke out better performance from the components.

CATL also supplies the nickel-based batteries in the Mercedes EQS. CATL and Mercedes have an agreement that includes LFP batteries using CATL’s “cell-to-pack” engineering, which saves on weight and cost by integrating cells directly into a battery pack.

Between battery joint ventures, long-term contracts on raw materials, and bets on breakthrough technology, Kallenius said he is confident Mercedes will have enough batteries to power its new lineup of EVs.

“We are covered, yes,” he said “But, it’s not where you can just lean back and say, ‘Well everything’s going to take care of itself.’ You have to actively engage and try to manage the supply chain as we enter into the age of the electric car.”