Mercedes takes on Tesla with $1bn US production plans for electric vehicles

German automaker Daimler's Alabama factory will make the European company the first to assemble plug-in autos in the US

A loading station for Mercedes electric cars at the IAA Car Show in Frankfurt, Germany. Germany's Daimler says its Mercedes-Benz luxury car division will set up electric vehicle production at its TuscShow more

Daimler plans to spend $1 billion to start production of Mercedes-Benz electric vehicles at its Alabama factory, setting the world’s largest luxury-car maker up to battle with battery-car specialist Tesla on its home turf.

The German automaker will build its fifth battery plant globally and create more than 600 jobs in the region, the company said on Thursday in a statement. The Alabama factory will assemble electric sport utility vehicles, taking on Tesla’s Model X and making Stuttgart-based Daimler the first European company to assemble plug-in autos in the US.

“We’re celebrating our 20th anniversary at our production facility in Tuscaloosa, Alabama, and we’re taking this as an opportunity to expand the operation and further fuel growth,” production chief Markus Schaefer said. “We’re very confident for future growth in the US in the long term. ”

While the investment could ease tensions over President Donald Trump’s claims that too many German cars were being sold to Americans, the real target is certainly the intensifying rivalry with Tesla. The Palo Alto, California-based carmaker’s flagship Model S sedan outsold the Mercedes S-Class and BMW 7-Series last year in the US, putting pressure on the brands to defend their image as automotive innovators.

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Daimler’s investment shows the carmaker’s shift to electric vehicles is taking shape. The German manufacturer is also in talks to expand its Denza joint venture with BYD in China with additional models, Chairman Wang Chuanfu told a group of reporters in the southern Chinese city on Thursday.

Like other automakers, Daimler is preparing for a time when sales of battery-powered vehicles finally take off. US sales are projected to grow fourfold from last year to 643,000 in 2021, about 4 per cent of the US auto market, according to estimates by Bloomberg New Energy Finance. The segment is expected to account more than one-third of sales in 2030.

The shift is proving costly. Daimler laid out a plan last week to slash 4 billion euros (US$4.8 billion) from spending by 2025 to compensate for weaker margins from electric cars as global automakers accelerate efforts to roll out cleaner vehicles amid tightening emissions rules across the globe.

As part of a 10 billion-euro green-car roll-out, Mercedes unveiled an electric hatchback this month at the Frankfurt auto show. In addition to the new EQ line of battery-powered cars, the manufacturer will add electrified versions across its model range. Daimler’s Smart city-car brand will gradually stop offering models with combustion engines as of 2020.

Mercedes, which topped BMW as the top luxury auto brand in the US last year, started assembling vehicles in Alabama 20 years ago. The factory has since emerged as one of the brand’s main manufacturing hubs worldwide, with some 70 per cent of assembled vehicles slated for export to global markets. About 3,700 employees produce the GLE, GLE Coupe and GLS SUVs at the site, which added the C-Class sedan for the North American market in 2014.