Senior executives of Daimler and BAIC with the new C-Class Long Wheelbase
Daimler AG expects the Chinese premium market to continue outpace overall industry growth over the next couple of years as it introduces new products and ramp up capacity for Mercedes-Benz, senior executives said in an interview with CBU/CAR on the sidelines of Auto China 2014 in Beijing on April 20.
“I’m very happy with the development last year and we are confident we will reach the volume target next year,” said Dr. Dieter Zetsche, chairman of the board of management of Daimler AG and head of Mercedes-Benz Cars.
Mercedes-Benz, which sold more than 200,000 vehicles in China last year for the first time, has seen positive momentum continue, according to Troska. The brand with the three-pointed star sold more than 64,100 passenger cars in China in the first quarter of 2014, with a year-on-year sales growth of 47 percent that outpaced the German rivals. At this pace, Mercedes-Benz is well on its way of achieving a double digit growth again this year.
“We believe that the Chinese automobile market has another good chance to grow double digits this year, and the premium market has a chance to grow even more than the overall passenger vehicle market,” said Hubertus Troska, member of the board of management of Daimler AG responsible for Greater China. “This is a very good environment to be in and we want to sell more than 300,000 units next year.”
New products, capacity, dealer network and economy to drive sales
Daimler is in the midst of launching a series of new products, adding new vehicle and engine production capacity, and expanding the dealership network for Mercedes-Benz. The company is banking on these measures for even higher growth and to close the gap with competitors.
“One part of our strategy is adding products that are perfect for China,” said Troska. One of them, the all new C-Class Long Wheelbase, to be produced by Beijing-Benz Automotive Co., Ltd. (BBAC), Daimler’s joint venture with Chinese partner BAIC Group, made its global premiere at Auto China 2014. The model is developed specifically for China and offers the maximized comfort in its segment. Another model, the compact SUV GLA, will also go into production at BBAC next year. The two models are part of strong product offensive that Mercedes-Benz will introduce to China by 2015. “We are going to have all these new products and that makes me confident we will have even higher growth rates next year,” said Troska.
Mercedes-Benz is also adding 100 dealer outlets, covering 40 cities this year, after adding 75 in 2013. On the production side, Daimler and BAIC recently announced that of the €4 billion they jointly invest in BBAC, €1 billion will be used solely to extend the capacity of the locally produced models and engines next year at BBAC.
“Many things are coming together right now,” said Zetsche. “We have a new plant, we have significant capacity including engine manufacturing, we are about to have a dealer network more or less covering the entire country, and we are having a product portfolio that is covering almost all spaces. With these ingredients, we can certainly go on offense.”
Troska does not think that the Chinese government’s anti-graft measures will impact the premium market as the economy develops positively and people’s standards of living improve, especially those of young professionals.
“The premium market will continue to grow, especially the compact premiums which are a fantastic opportunity for young Chinese professionals to experience their first premium car,” said Troska. “It would be a nice way to experience the development of China.”
Troska believes fresh, attractive and compact premium products, such as the CLA and GLA, is the best strategy to attract these young professionals. The average age for all German premium brands in China, according to Troska, is 36-38. For the S-Class, it is only 40.
With the generation change over of the C-Class and rising demand for other new models, Mercedes-Benz could be looking at a supply shortage, according to Zetsche. “In many if not most of our car lines on a global basis, we are short in supply. There are strong limitations. I just can’t give him (Troska) the supply he needs,” quipped Zetsche.
Positive impacts from changes already in place
Part of the measures to tackle the supply challenge is the investment totaling €4 billion that Daimler and partner BAIC will put into BBAC, including the earlier mentioned €1 billion to increase vehicle and output capacity.
For the last 16 months, Mercedes-Benz has streamlined its sales, distribution and service network with the establishment of Beijing Mercedes-Benz Sales and Service Co., Ltd. (BMBS) that combined sales of locally made and imported models. Network coverage has improved significantly and the right products are in place.
“We are quickly closing the gap with our competitors and by next year at the latest we should not have any big difference in coverage,” said Troska, who also emphasized the importance of quality of sales and service, rather than just quantity. “We are doubling our training capacity by opening our largest training center for Mercedes-Benz passenger cars in the world in Shanghai later this year.”
Mercedes-Benz is also strengthening local R&D capabilities with the opening of its new China R&D Center later in the year, according to Troska. “We are increasing our China focus strongly and the task is to do all the right things at the same time,” said Troska.
Zetsche is confident what Troska and his team have done and will do will take Mercedes-Benz in the right direction. “We are definitely not at a final destination but we see positive impacts from all the changes which we have executed very well. We are very confident we will continue the path in the direction of getting to a higher level with our competitors.”
China is expected to become biggest EV market
Daimler is also equally confident of China’s electric vehicle market.
“It has potential to become the biggest electric vehicle market in the world. I can sense there is strong push by the government to develop the market,” said Troska.
Daimler and partner BYD, through their joint venture – Shenzhen BYD Daimler New Technology Co., Ltd., unveiled the mass production version of the Denza EV at Auto China 2014. The model will officially hit the market in September and Daimler is calling it the “safest EV produced in China for China.”
“With the Denza, we are making a serious undertaking in China. The Chinese government is doing the right thing to support the EV industry and that has a big chance to grow,” said Troska. Zetsche hopes that the characteristics of the Denza, such as a range of 300 km and overall unprecedented level of execution of the vehicle will “lead to a good customer response.” The model is eligible for local subsidies in Beijing and Shanghai, two markets where it will go on sale first.
The cooperation with BYD, according to Zetsche, is just one of the ways Daimler is “testing the waters” in different markets with different partners and technologies to drive the development of the EV industry in China and globally.
JV relationship to intensify
Neither Zetsche nor Troska think that the recent debate on the issue of 50:50 equity rule will, at least for the time being, have any impact on Daimler’s strategy in China, part of which is to further strengthen the relationship with its JV partners.
“We had a further development of our relationship with our partner BAIC and in our investment in BAIC Motor. Other than that we have no plans for any change,” said Zetsche. “We will learn about potential new policies and conclude after that.”
Last November, Daimler completed its transaction of acquiring a 12 percent stake in BAIC Motor, the passenger car subsidiary of BAIC Group, for €625 million.
“We live within the regulatory environment of China but I do not have confirmation there is any regulation change to that policy today,” said Troska. “We have no specific changes or plans at the moment. We are intensifying our joint venture relationship (with BAIC) and we are mutually investing.”