Daimler CEO Ola Källenius said the rise in EV production going forward will result in the company getting smaller in the next five years.

Daimler AG, the parent of the Mercedes-Benz brand, expects to become a smaller company during the next five years as it makes the shift from gas and diesel to electric propulsion, Chief Executive Ola Källenius said.

Battery-electric vehicles require fewer parts and are able to better take advantage of automation, according to industry experts, requiring fewer jobs as they become a more mainstream part of the industry’s product mix. Studies indicate the impact will be felt across the industry, particularly by traditional automakers such as Daimler, General Motors and others just beginning to switch to battery power.

“The next five years we will become a smaller company,” Källenius said during an automotive industry conference sponsored by Reuters. “We will have a fundamental change in the industrial footprint on the powertrain side.”

(Daimler sees rebound in third quarter.)

Mercedes new EQC electric vehicle is just part of the Daimler wave of electric vehicles coming in the near future.

For the moment, electrified vehicles – including hybrids and fuel-cell vehicles, as well as BEVs – remain a small part of the business. For all of 2020 they are expected to generate about 5% of total U.S. sales, though demand has been growing more rapidly in other parts of the world, notably Europe and China. The Beijing government this month laid out plans to boost sales of plug-based vehicles to 20% of the market by mid-decade. Several European countries have laid out plans to ban the sale of new gas and diesel-powered models entirely.

Long focused on diesel power to deliver better mileage and lower emissions, the various Daimler brands, including Mercedes-Benz, Smart and Maybach, have laid out aggressive electrification plans with an increasing emphasis on pure battery-electric vehicles like the Mercedes-EQ GLC.

During his presentation, Källenius did not indicate how much smaller Daimler might become – and part of what will happen could depend upon the automaker’s broader business strategy.

The biggest impact is expected to be felt on the powertrain side where new products are likely to be more clearly differentiated from the type of vehicles on the road today. Research by financial firm ING suggests the driveline of an electric vehicle has about 200 components, down from more than 1,400 in a gas or diesel powertrain. And many of those parts can be handled robotically.

Mercedes-Benz is taking orders for its new EQC electric crossover vehicle.

(Former Daimler CEO Zetsche declines return in chairman’s role.)

There is no doubt “a lot of jobs at risk,” Mark Wakefield, the head of the automotive practice at consultancy AlixPartners, told TheDetroitBureau.com, but the largest downsizing is expected to come on the powertrain component side, the consulting firm concluded in a study released late last year. It found the average gasoline driveline required about 6.2 manhours of labor, with a BEV’s powertrain cutting that to 3.7.

Even so, the next generation of electrified vehicles might not bring a wholesale downturn in automotive employment. While there will clearly be fewer jobs on the manufacturing side, the technology will require more engineers, especially those developing the software to run BEVs.

Earlier this week, in fact, General Motors announced plans to hire 3,000 new engineers to help accelerate its aggressive electrification program which aims to bring at least 20 BEVs to market by 2023. Most of those new employees will be involved in software development, the company said.

Daimler’s even got the all-electric EQV van in the pipeline.

At the same time, automakers like GM, BMW and Daimler plan to take advantage of the increasingly connected nature of new vehicles to create new business opportunities.

“Think about it like an iPhone,” Källenius said on Thursday. Even conventionally powered vehicles are now introducing the ability to use over-the-air updates to upgrade software and add new features. And there’s a general belief within automotive circles that once autonomous vehicles become commonplace passengers will want access to services such as streaming video on built-in screens.

(Daimler seeping red due to second quarter estimates.)

“You can add to it,” the Daimler CEO said. “That’s the beauty of it.”

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