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8/1/2008
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Mercedes May Cancel Hybrid SUV Plan Due To Chevron Dispute

A legal dispute between Mercedes and Cobasys has halted the production of nickel-metal hydride batteries, which the carmaker needs for its ML-450 SUV.

Mercedes-Benz may be forced to cancel plans to produce its first hybrid sport utility vehicle for the U.S. market because oil giant Chevron and a partner have pulled funding from the automaker's sole supplier of electric batteries needed to power the vehicle, InformationWeek has learned.

The situation threatens Mercedes' plan to roll out a hybrid SUV called the ML-450 next year at its plant in Vance, Ala. It was not immediately clear if Mercedes, a unit of Daimler, would have to cut jobs at the plant -- which Mercedes said Friday will reduce its output of gas-only vehicles this year -- if the problem isn't soon resolved. Mercedes officials did not immediately return a call seeking comment.

On Friday, Daimler reported that sales of Mercedes vehicles in the United States rose 11.6% in July.

Mercedes last year agreed to procure nickel-metal hydride (NiMH) batteries for the ML-450 from Orion, Mich.-based Cobasys, which is jointly owned by Chevron and Energy Conversion Devices. Mercedes now claims that Cobasys is refusing to honor the agreement because it's cash starved and on the block.

According to a lawsuit that Mercedes filed this week, Chevron and ECD quietly pulled funding from Cobasys in December and are now either close to selling -- or have in fact sold -- the company.

The lawsuit accuses Chevron, ECD, and Cobasys of conspiring to keep the plan to put Cobasys up for sale a secret from Mercedes officials so that the automaker would not pull the battery deal -- a move that could discourage potential suitors for Cobasys. At the same time, the suit alleges, Cobasys has refused to begin production of the NiMH batteries for Mercedes in case new owners don't want the contract. Chevron and ECD have found a buyer for Cobasys, but have yet to disclose its identity, Mercedes claims in court papers.

Mercedes says that if Cobasys does not immediately begin production of the batteries, it may have to kill the ML-450.

"Without a reliable source for this critical part, [Mercedes] will be unable to produce the hybrid vehicle in accordance with its scheduled launch date, and will likely be forced to cancel the vehicle entirely, or delay the launch for an extend period," Mercedes warns in the suit, which was filed Wednesday in U.S. District Court for Northern Alabama.

Mercedes claims it has already paid Cobasys $6 million for development work on the NiMH battery and is asking the court to order the company to begin production immediately. Mercedes is also seeking unspecified damages. Cobasys officials were not immediately available for comment.

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