Showing its seriousness about an electric future, Mercedes-Benz plans to invest $1 billion in Alabama to produce electric vehicles.
The investment will go both to an expansion of the German luxury brand's existing plant near Tuscaloosa and to build a new 1 million-square-foot battery factory.
While electric vehicle sales have been tepid overall, Mercedes has watched as Tesla jumped out has become a formidable player in the super-premium segment with its electric Model S sedan and Model X crossover.
Now Tesla is threatening the lower, entry-level part of the luxury market with its lower-priced Model 3 sedan.
The company is pursuing an "anything Tesla can do, we can do better" strategy, Sanford Bernstein analyst Max Warburton said in a recent note to investors. "Mercedes is convinced it can match Tesla battery costs, beat its manufacturing and procurement costs, ramp up production faster and have better quality. It is also confident its cars will drive better."
Mercedes' move also comes as the major German automakers, including Volkswagen and BMW, are pivoting rapidly away from diesel engines amid increasingly rigid global emissions regulations.
Mercedes said it expects to add 600 new jobs in the Tuscaloosa area with the new investment. It will augment a $1.3 billion expansion of the facility announced in 2015 to add a new car body manufacturing shop and upgrade logistics and computer systems.
"We are significantly growing our manufacturing footprint here in Alabama, while sending a clear message to our customers across the U.S. and around the world: Mercedes-Benz will continue to be on the cutting-edge of electric vehicle development and production,” said Markus Schäfer, a Mercedes brand executive, in a statement.
The company's new plans include Alabama production of electric SUV models under the Mercedes EQ nameplate.
The 1 million-square-foot battery factory will be located near the Tuscaloosa plant, Mercedes said in a statement. It will be the fifth Daimler operation worldwide with battery production capability.
Mercedes said it plans to begin construction in 2018 and start production in "the beginning of the next decade."
The move fits squarely within Daimler's plan to offer more than 50 vehicles with some form of hybrid or electric powertrain by 2022.
The announcement was tied to a 20th-anniversary celebration at the Tuscaloosa plant, which opened in 1997. The factory currently employs more than 3,700 workers and makes more than 310,000 vehicles annually.
The factory makes the GLE, GLS and GLE Coupe SUVs for sale in the U.S. and globally and makes the C-class sedan for sale in North America.
Despite low gasoline prices and U.S. market share of only 0.5% so far this year for electric cars, investments in the segment are accelerating for regulatory and technological reasons.
Sanford Bernstein analyst Mark Newman projected that falling battery costs would make electric cars the same price as gas vehicles by 2021, which is "far earlier than most expect."
And although the Trump administration is considering lowering fuel economy standards, automakers are pressing ahead with electric car plans because regulators in other markets are pushing to reduce emissions.
Chief among them is China, the world's largest car market. Xin Guobin, China's vice minister of industry and information technology, recently announced a ban on manufacturing and sale of gas vehicles in China but provided no details on timing.
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