How is India positioned in your global business, as many Western markets have slowed down and passenger vehicle market volumes in India continue to rise?
We have had a less-than-normal situation in the world markets over the last three years with covid-19, semiconductor constraints, the war in Ukraine, effects on the energy market in Europe, and so on and so forth. With all those tests over the last three years, India really came out of the box with a bang and was indeed our fastest-growing market in 2022. On the tech and engineering side, the Mercedes Benz Research and Development Institute in Bangalore is by a wide margin the second biggest engineering and tech hub we have for Mercedes in the world, besides Germany, which means that in every Mercedes, you have a piece of India, on the mechanical side, on the electrical side, and of course, also on the software side which is a particular strength of our engineering team here. We’ve also taken a step into electric production here as an early mover. India, at the moment, is a 3.8 million vehicle market; about 1% is the premium luxury segment, and of that 1%, we are the market leader. In 10 years, that market will be much bigger. On the operational side, at our production site in Pune, we have invested heavily and can at least double the volume.
Do you think India can continue on the same pace of growth this year as well?
I’m cautiously optimistic that this could be another year of good growth momentum. It’s also fuelled by fantastic products, not just the new electric products, which are hugely important but also refreshing the portfolio in other segments, as well. India is definitely a focal point for us. My first trip in 2023 is to India. India’s economic growth potential over the next 10 years as such is very important, and we will continue to invest, whether on the engineering and innovation and technical side or in terms of the market on the operational side.
Mercedes-Benz has committed to selling only EVs in all major markets by 2030. Given the stress in global supply chains and the pressure on sourcing raw materials for batteries, what challenges do you anticipate?
One lesson from the semiconductor supply chain issues we have been battling over the last two-and-a-half years is we have started engaging in more deep sourcing: going beyond tier-I suppliers and looking at the whole value chain, in this case, going down to the chip maker, and even understand beyond the chip maker, to the fab that supplies them. We are on a similar journey for battery raw materials, which will be the most important thing and maybe the biggest industrial task of going towards zero emissions. Switching over an industrial footprint built up over 100 years to a completely new one is a Herculean task. So, we are now engaging all the way down to the source of the raw material and looking at striking agreements in cooperation with tier-I suppliers, needless to say, so that we can protect ourselves because even though there’s enough lithium on earth to solve this problem, can the mining and refining capacity be installed quickly enough to satisfy all the ambitions of all the OEMs? It’s an open question. Next to that, the other factor that will then also decide the adoption rate is charging infrastructure. That is why we decided, as one of the few automakers, on top of things that we have been doing already in consortiums, and we announced this at CES in Las Vegas to embark on a journey to build a high-performance charging network for Mercedes, operated by Mercedes, in our main markets.
What’s your outlook on how global economic conditions will emerge?
We had inflation as a result of covid-19 supply constraints due to the war in Ukraine and so on. Interest rates have been the response of the federal banks. And, usually, that leads to a cooling-down of the economy. That’s the casualty we can’t escape from. Having said that, there is lots of speculation about whether it is going to be a soft landing or a medium landing. In China, as they come out of covid-19, it seems like the policymakers there are hell-bent on getting the economy really going. The US actually looks a little bit more robust than we thought. So, where there was a tremendous amount of caution and some pessimism some months ago in the economic circles, just reading the news of Davos, where all those economists meet again, we get the sense it’s not going to be as bad as we thought it would be. But it’s prudent to say that we will have a slowdown economically, that we need to deal with us as a company. And let’s hope that it is not a deep slowdown. In India, the macro journey over a longer period of time is growth.
Since vehicles still need 28/65nm chips, etc., how are you diversifying the supply chain for those chips?
If I think back to the last 18-24 months, it feels like I’ve had that conversation with my counterpart in more or less every chip company in the world. And that technology is moving into the sub-5nm or even 2nm space. We’ll have to stop using nanometers soon and talk about angstrom instead. We’re using those kinds of chips for the most sophisticated chips that we have. Those are not the chips that have been short. It’s been more in 28nm and above. There are investments going on in that space as well — that area had been neglected investment-wise for a while, so we were moving into structural issues with or without covid-19. But some of the players know that we will need chips in the higher nanometer categories in many years to come. Some of those investments will come to fruition in this calendar year, 2023, but I believe there will be a gradual migration from higher to lower nanometer categories as well.
Do you see the chip manufacturing plants in India as a serious possible prospect for you in the future?
When we talk to the political leadership in economic regions — Europe, the US, China etc. — our message is that we need both cutting-edge and legacy chips. The ‘bread and butter’ side of it is needed for many functions. The countries investing most now— the US is making a very big move, Europe is at least starting to make a move, and of course, Asia has always been there.
