Daimler to Invest $1 Billion in Alabama Plant -- 2nd Update

TUSCALOOSA, Ala. -- Daimler AG said Thursday it will invest $1 billion in its Alabama manufacturing operations and start production here of a fully electric sport-utility vehicle.

The German auto maker's expansion in the U.S. is part of its global push into electric vehicles and follows its announcement in July to build a battery assembly facility in China. The company plans to offer more than 50 fully or partly electric vehicles globally, and by 2022 offer electrified options for its entire Mercedes-brand lineup.

"We live now in a phase of major changes in the industry," Markus Schäfer, a Daimler board member in charge of Mercedes's production and supply chain, said in an interview. "We are leading at the moment in our [luxury vehicle] segment, but we see clearly there are new players coming that are potential competitors to us."

Daimler said it would begin production of an electric SUV early next decade at the Tuscaloosa plant and in 2018 begin construction nearby of a facility to assemble battery systems for use in those and other vehicles. Combined, the new plans are expected to create as many as 600 jobs, it said.

The new SUV will be sold under the Mercedes-Benz EQ electric vehicle subbrand, but the company didn't specify its size or engine displacement.

German auto makers are moving rapidly toward electrification as demand for their trademark diesel technology has slumped in Europe.

The billion-dollar bet by Daimler is part of a wave of U.S. investments planned by foreign auto makers despite weakening sales volumes and widespread expectations for further declines in the market.

Earlier this week, Chinese-owned Volvo Cars said it would double its investment in its first U.S. plant in Charleston, S.C., to a total of $1 billion. That followed an announcement last month by Toyota Motor Corp. and Mazda Motor Corp. t o jointly build a new $1.6 billion plant in the U.S. and a commitment by BMW AG in June to spend $600 million at its Spartanburg, S.C., factory.

At the same time, the Detroit Big Three auto makers have been dialing back production at some North American plants this year and, in some cases cutting shifts or entire product lines.

Ford Motor Co. said this week it would temporarily suspend production at three U.S. factories and two Mexican plants. General Motors Co. has cut shifts at certain plants in the U.S., and Fiat Chrysler Automobiles NV has exited production of all but a handful of sedans and will shut down a Canadian plant making its flagship minivan for five weeks this fall.

Daimler's investment comes on top of the $5.8 billion it already has invested on its Tuscaloosa operations, which began production in 1997. Last year, the plant produced more than 310,000 Mercedes vehicles, including midsize SUVs as well as entry-level C-Class sedans. The company has reduced output of those sedans to ramp up production of SUVs, Mr. Schäfer said. More than 70% of the SUVs manufactured at the Alabama plant are exported to global markets such as China.

"We see a global trend toward SUVs" and away from sedans, he said.

Daimler said some of the new EQ SUV production will also be exported but wouldn't specify how many of these vehicles it expects to sell in the U.S. These fully electric vehicles will be integrated into the gasoline engine and hybrid gas-electric assembly lines in Tuscaloosa.

"We don't foresee any building expansion per se" at the existing plant, said Jason Hoff, chief executive of Daimler's manufacturing operations in Alabama.

The auto maker plans to outsource production of the lithium-ion battery cells it uses, but assemble the cooling systems and other parts for electric powertrains at the new facility in Alabama.

The battery factory will be one of five such plants world-wide, including three in Germany and one planned for China.

In addition to upgrades to its existing production line and the battery subassembly plant, Daimler also plans to build a logistics hub for exporting so-called knockdown kits of vehicles for final assembly in other markets, such as Russia and Southeast Asia. The company is aiming to ship kits from Alabama totaling about 20,000 vehicles a year, Mr. Schäfer said.

Alabama state officials didn't disclose the amount of tax abatements and other incentives being offered to attract the additional investment from Daimler. That is still being negotiated, but will be disclosed pending a final agreement, said Alabama Secretary of Commerce Greg Canfield.

Write to Chester Dawson at chester.dawson@wsj.com

(END) Dow Jones Newswires

September 21, 2017 14:36 ET (18:36 GMT)