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The automotive industry is in a ‘fundamental transition’ to move carbon neutral: Daimler AG CEO

Daimler AG CEO Ola Källenius joins Yahoo Finance’s Adam Shapiro to weigh in on the company’s green strategy to building cars.

Video Transcript

ADAM SHAPIRO: Germany's Daimler AG is the largest truck manufacturer in the world, also Mercedes Benz car brand, known for luxury and quality. But Daimler is making headlines with the new state of the art factory it calls Factory 56. CEO Ola Kallenius tells us why it is a game changer as the auto industry recovers from the pandemic.

OLA KALLENIUS: Well, 100 years later, Adam, of course, you have technologies that didn't exist back then. And what Factory 56 is for us, is really what we call in Germany, Industry 4.0. Everything is digitized, everything is connected. It's a fully flexible production. It takes efficiency level improvements of 25% compared to our current assembly operations. And of course, it's sustainable. This is a CO2 neutral factory. So it will work as a blueprint for our production of the future.

ADAM SHAPIRO: In fact, you have an ambition to produce cars which are climate neutral within the next 19 years, not even, 18 years, 2039 as the target date. So is the goal with this type of facility that goal? Or is it that it's so much more flexible you can turn over production in a matter of days whereas modern or current facilities, it can take months to a year to set up a new production line?

OLA KALLENIUS: It's really both. Mercedes Benz is on a quest towards CO2 neutral mobility. And it's not enough that you just put out emission-free cars, you have to look at the whole value chain. And of course, our own production. And in terms of production for Mercedes Benz cars and vans, already by 2022 in 30 plants around the world, all our plants for that, we will be producing CO2 neutral. But the flexibility is also key. This factory starts with our flagship, the new S Class. But it will quickly add another model and then a third. And we can very, very flexibly switch between these models to react to market demand. And that's, of course, improving our productivity.

ADAM SHAPIRO: So what will you learn from this factory that you might then use in future retrofits of factories here in the United States or in other parts of the world?

OLA KALLENIUS: Well, if we look at the connectivity, I think that's one of the unique things. Not only have we put together our own private 5G network here, literally everything here, every machine and every car is connected to everything else, it is the first factory that is completely paperless. Companies have been talking about this for years now. Here, we have done it. So you combine efficiency, flexibility, and the ability to react quickly, but also with sustainability. As it's ticking all the boxes really.

ADAM SHAPIRO: You know, now is a difficult time for all companies, whether they be manufacturers, automobiles, to make these kinds of investments because of the global pandemic. What do you see going forward as the way to manage one, your cash burn, but also, the future of sales? Because the world is shifting in so many ways.

OLA KALLENIUS: The automotive sector is in a fundamental transformation towards CO2 neutrality, through electrification, but also digitization. What does that mean for us? We are investing on very high levels in new technologies and innovations. So at the same time, you have to double down on cost efficiency, and also do some cost restructuring to generate the cash flow you need to win in the future.

We can now see after an unprecedented drop in market demand due to lockdowns in Q2, that markets are starting to come back. So if we manage this well, and we have had a very strong focus on liquidity in this first six months and kept that in a very robust position, we can really do both invest into the future, keep our operations stable throughout the pandemic, and also generate the cash flow we need to win the transformation.

ADAM SHAPIRO: But when we talk about the goal of being climate neutral by 2039, I want to dive deeper into that. That's on the production side? Or is that also with the fleet of vehicles? I would imagine that would be hard to do if you have combustion engine models past 20 say 40.

OLA KALLENIUS: It's on the production side, of course, but it's also our own operations. We're talking to our suppliers, that they will follow our lead. So the things that we buy should also be produced CO2 neutral. And of course, for our electrified fleet, we have a whole host of electric cars that are in the pipeline, some of them already on the road. Talking to utility companies to give green energy for our customers for those vehicles. So you take a holistic view of this. For the fleet that is already on the road some day into the future that is combustion-based, many companies in the energy sectors are also looking at low carbon fuel or even someday in the future all the way to synthetic fuels. So there is a way to already with the fleet, also reduce the carbon intensity.

ADAM SHAPIRO: Short term, the next year or two, how long is it going to take the automotive industry, you talk about recovery, to get back to the levels of production we saw going into this year?

OLA KALLENIUS: Well, I think we're over the first phase now of the COVID-19 pandemic, and we are gradually returning to some sort of normalcy. China is taking the lead here with a V-shaped return. The United States and Europe are not yet on those levels. So I don't want to pinpoint an exact time for when that will happen. But at least we can now see markets starting to recover and come back to some sort of a normalcy.