Mercedes prepares for gas shortages in Europe during the fall

Mercedes-Benz AG is readying plans ahead of looming gas shortages in Europe after Russia’s invasion of Ukraine sparked concerns over security of supply. 

The luxury automaker is looking at alternative fuels and other measures to keep its car painting operations running if natural gas is in short supply or rationed later this year. Gas prices have surged to record highs in the wake of the war in Ukraine that has triggered concern for sanctions on Russian gas exports or the tap being turned off in retaliation.

 “Everybody is looking at this,” Joerg Burzer, the Mercedes board member responsible for supply chain and production said when asked whether the carmaker is considering fuels like butane or propane as alternatives to natural gas. “The automotive industry needs gas for paintshops and we’re obviously thinking about that, especially for next fall.”

Industrial giants across Europe are contingency planning for a sudden-stop in Russian energy exports. While German officials have voiced opposition to sanctions on gas from Russia, scenarios such as an intensification of attacks on civilian areas could shift the debate toward restrictive measures. Russia could also chose to retaliate against sanctions by shutting off supplies. 

Leonhard Birnbaum, chief executive officer of German utility EON SE on Wednesday said his company probably wouldn’t be able to supply all households and industrial companies with gas this winter, making disconnections to factories likely.

Interruption to gas supply—and ensuing rationing in countries like Germany—could impact automaker’s paintshops where natural gas is used to create steam for heating and compressed air. Fuels like butane and propane, made at refineries processing oil are an alternative, although their cost is significantly higher.  

Burzer said the war had triggered other production planning challenges, particularly the availability of wire harnesses that are produced in Ukraine. The carmaker has so far managed to avoid the outages that hit German rivals Volkswagen AG and BMW AG.

“Our plants are running and will be next week, as far as I can see,” Burzer said told reporters during the company’s opening of a battery assembly facility in Tuscaloosa, Alabama. “It’s day-to-day and week-to-week management.”

Palladium, used in catalytic converters in cars with Russia mining about 40% of global supply, could become an issue over coming weeks, Burzer said. Nickel supplies are also at risk, he said.

“For raw materials, there is a production process that starts two, three or four weeks before you need it,” Burzer said, adding this means Mercedes planners still have some time to avoid production snarls from shortages.

The executive said the company was monitoring the spread of the omicron variant in China and the impact stringent lockdowns could have on production there.