STLA Stellantis NV

By Adrienne Roberts 

Daimler AG is planning a risky shift for its Smart brand in the U.S., deciding the struggling unit will exclusively sell electric versions of the small city cars after the current model year ends.

The move, communicated to 85 Smart dealers earlier this week, comes amid weak demand for both electric vehicles and compact cars and an increased appetite for pickups and sport utilities. Smart, which launched in the U.S. in 2008 with minicars that are much smaller than most automobiles on American roadways, competes in a compact segment that is shrinking.

Most Smart dealers also sell Mercedes-Benz products, which represent the bulk of Daimler's sales in the U.S.

Daimler's rethinking of Smart reflects broader strategy shifts related to small cars. Fiat Chrysler Automobiles, for instance, recently killed off a Dodge small car and retooled its strategy for the tiny Fiat 500 by cutting prices as much as $3,900 and allowing dealers to scale back on overhead.

Smart cars are used in certain car-sharing fleets, where the short range of electric cars and charging needs are less of an impediment than they are for private owners. Daimler's car2go sharing service, for instance, offers Smart cars in various cities.

While electric vehicles represent a sliver of U.S. sales and competent EVs are hard to find, the strategy of selling an electric-only lineup has seen success. Tesla Motors Co., selling vehicles that cost five times as much as Smart products, has consistently increased sales even as most other electric vehicles have struggled.

While a handful of electric-only brands have fizzled, startups -- including Faraday Future, a California-based company backed by Chinese investors -- are planning to enter the market with EV lineups in coming years.

Electric vehicles accounted for 0.37% of all new car sales in the U.S. in 2016, according to Edmunds.com. Tesla sold 76,230 vehicles last year, a substantial portion of which was delivered to U.S. buyers.

Not all efforts are considered as successful. BMW AG has a small i3 that can travel as far as 114 miles on a single charge. Even after extending the range on the i3 electric vehicle in July by about 33 miles the auto maker only sold 7,625 of them in the U.S. in 2016.

Like many auto makers, Mercedes-Benz owner Daimler is spending heavily on electric vehicles to meet emissions requirements and in expectation of an eventual uptick in consumer demand. Converting the niche Smart lineup to electric in the U.S. is likely one step in a process that will include the launch of more capable electric luxury cars.

"Electric is central to our long-term powertrain strategy in the U.S., and the smart Fortwo electric drive will play an important role in carrying this forward," Daimler said in its dealer letter. Smart's electric vehicles can achieve 68 miles of driving on a single charge and are currently on sale in the U.S..

Selling electric cars can help auto makers meet emissions requirements even when having a disproportionate reliance on less-efficient vehicles, including certain SUVs. In January, for instance, Mercedes relied on SUVs for 49.3% for its U.S. sales, according to Autodata.

Daimler recently redesigned the two-seat Smart Fortwo coupe and the Fortwo convertible that are currently on sale with a $14,600 base price. The electric versions of those cars, which will be the lone offerings when the 2018 model-year lineup debuts, has a $12,490 base price.

"We're sorry to see the gasoline-powered Smart cars go, but they're not a huge part of our business," said Kim Patterson, general manager of Mercedes-Benz of Plano, Texas. He said the company sells an average 185 Mercedes products a month, compared to five Smart cars.

Smart sold 6,211 vehicles in the U.S. last year, a decrease of 17% when compared to 2015 and 74.8% from the 24,622 vehicles it sold in 2008 when it made its debut in the U.S. Daimler launched Smart in the late 1990s for European markets, where city cars have long enjoyed more popularity and fuel prices are typically much higher than in the U.S..

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com

(END) Dow Jones Newswires

February 16, 2017 18:46 ET (23:46 GMT)

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