Mercedes migrates to more expensive chips to plug shortage

For Daimler CEO Ola Kallenius, one of the lessons of the global chip shortage is that it's time for an upgrade.

Daimler's Mercedes-Benz unit has partnered with Nvidia to develop chips for sophisticated features such as automated driving and AI-powered infotainment systems. But that's not the component that has been wreaking havoc on Mercedes's supply chain this year.

"What is short are the simplest parts, the dollar-a-pop," items such as the chip that locks and unlocks a car door, Kallenius said in an interview at Mercedes's U.S. headquarters in Atlanta.

"What we are doing together with the chip producers is trying to migrate some of those simpler, older node technologies into more modern nodes where there’s more capacity," he said.

The entire auto industry is making that same shift, Kallenius said.

Daimler hopes to stabilize its supply chain for semiconductors during this quarter, but expects real relief from shortages of chips will not arrive until 2023, Kallenius told Reuters on Friday, while visiting Mercedes operations in the U.S.

He said production of Mercedes vehicles during the fourth quarter will be lower than a year ago, which was an unusually strong quarter as the company began recovering from pandemic shutdowns.

"We cannot have 100 percent certainty" about supplies of semiconductors, Kallenius said. COVID-related shutdowns this summer at Malaysian plants that process semiconductors set back the auto industry's efforts to recover production lost earlier in the year.

"We hope to be able to stabilize the situation in the fourth quarter, and take that to the next level in 2022," he said.

However, he said, major chip producers are saying restrictions in supply could continue into 2023. "We have to stay flexible," Kallenius said.

Daimler is managing supply-chain disruptions on top of planning for a split of the company into a standalone luxury vehicle company, Mercedes-Benz, and a separate commercial truck business. Mercedes is accelerating its shift to an all-electric lineup by 2030.

Mercedes is launching a full-electric flagship sedan, the EQS, and is preparing to launch production of an electric EQS SUV at its factory in Alabama that will go on sale next year.

"We are trying to speed up the transition" to electric vehicles, Kallenius said.

The EQS sedan and SUV should be "profitable from the word go" in the U.S. market, he said

Mercedes took the biggest hit among major U.S. luxury carmakers in the third quarter, with U.S. sales falling 21 percent from July through September compared to 2020.

Electric vehicles will help boost U.S. sales in the next few years, rather than simply cannibalizing combustion-based models, Kallenius said. But he has become resigned to the fact that supply chain bottlenecks could make for a slow start.

"Let's just recognize that we will have to live with a level of uncertainty until these turbulences go away," he said he told his sales and marketing teams. "Most customers are very understanding -- they read the newspaper too, and they understand something is going on."

Reuters contributed to this report