Mercedes reverses its EV entry strategy for U.S.

Mercedes-Benz's electric vehicle strategy for the U.S. market will take a contrarian approach when it unfolds next year, opting for profit margin over sales volume.

The automaker will launch its EQ subbrand into the truck- and crossover-crazed market with an electric version of its S-Class sedan, Daimler CEO Ola Kallenius said in a media roundtable last week.

That is no accident.

Mercedes reversed an earlier plan to debut its electric model line in the U.S. with the EQC crossover, a battery-powered version of the brand's top-selling GLC compact.

"We will start and lead with the EQS, that's our strategy for the U.S.," Kallenius said of the rethink. "We said that for positioning the EQ brand in the U.S., start from the top and then go from there."

The EQS sedan, Mercedes' answer to Tesla's Model S, is slated to arrive in the U.S. next summer. It will travel more than 430 miles (692 km) on a single charge, based on the WLTP testing cycle.

The EQS should benefit from the halo of the flagship S-Class, which draws some of the brand's most loyal customers.

Working from the top of the lineup down allows Mercedes-Benz to build its consumer base for electric vehicles, noted Sam Fiorani, vice president at AutoForecast Solutions.

"Instead of shooting for high volume, starting with the niche models provides higher transaction prices and helps them pay off the investment for all of the electrification coming in the next few years," Fiorani said. "When the performance benefits of high-end models such as the EQS become apparent, buyers who can't afford the EQS will be lined up for less expensive vehicles such as the EQC."

"Cadillac has acknowledged that 300 miles is table stakes and 400 is more desirable while brands like Tesla and Lucid are approaching 500 miles."

It's unclear when the EQC will arrive in the U.S. The model's early 2020 arrival had been delayed to next year. However, according to a source familiar with the plan, the EQC's U.S. launch might now be pushed into 2022.

"We kind of launched the EQC in volume into the COVID lockdown, which was perhaps not ideal," Kallenius said.

But sales have steadily risen in the second half of the year. In September, Mercedes sold about 2,500 EQCs, Kallenius said. "October is going to be bigger and November is going to be bigger than that," he added. "So we're really picking up speed."

But the EQC's limited driving range could make it a tough sell in the U.S., a market that remains unconvinced about EVs in general. Powered by an 80-kilowatt-hour battery, the EQC has a roughly 290-mile (467 km) range on a full charge, based on the less-stringent New European Driving Cycle testing standard.

Guidehouse Insights analyst Sam Abuelsamid does not expect the EQC to top 200 miles of EPA-rated range, which he said would make it uncompetitive.

Subpar range was a likely reason BMW nixed plans to bring its iX3 compact crossover to the U.S.

"Anything less than a 250-mile EPA range is likely to be a non-starter for a premium brand in the U.S. market," he said.