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Seven-year itch

The global debut of the Denza Concept X on June 1 (see Denza’s new “X” factor: Styled and sold by Mercedes-Benz, produced by BYD) finally addresses the “seven-year itch” of partners BYD and Daimler for their first “child:” poor product positioning, unorthodox design (that didn’t work), weak brand recognition and lack of distribution channels.

The second generation of the Denza production vehicle previewed by the Concept X is designed by Mercedes-Benz and will bear the “Styled by Mercedes-Benz” emblem and will be distributed via Mercedes-Benz channels when it is launched to market early next year. BYD, on the other hand, will continue to take care of manufacturing and provide support on components such as batteries, electric motors and electronic control. Both partners have decided to go “mainstream” with the seven-seater SUV offering better performance and range compared with the existing “funky” looking Denza 500 that looks like a cross between a hatch, sedan and a crossover.

“Styled and sold by Mercedes-Benz, produced by BYD” seems to be the new solution to that “seven-year itch” which has seen Denza sell just a few thousand units per year over the last four years since market launch in 2014 and rack up losses totaling more than ¥3.5 billion.

It almost seems like the story of almost every other Chinese smart EV startup.

Heck, when BYD and Daimler signed the deal to create China’s first Sino-Foreign joint venture dedicated to new energy vehicles nine years ago and launched the Denza brand seven years ago, they might have created the first ever Chinese smart EV startup.

While Denza is a 50:50 JV, manufacturing is “outsourced” to BYD rather than done at a standalone production facility since the JV was formed as a technology JV. Now with design and sales & marketing completely shifting to Mercedes-Benz, Denza is becoming a lot more like a Chinese smart EV startup model such as NIO utilizing JAC for production as a manufacturing partner.

One of the reasons that Denza did not reap the fruit of China’s gushing NEV market over the last five years is its high-end positioning (e.g. pricing) did not match its brand premium. In other words, consumers did not feel the nearly-¥400,000 price tag was justifiable for the new brand. And quite frankly, even if they did, the brand lacked network coverage.

Now with the locally-produced Mercedes-Benz EQC coming, BYD’s own NEV products going high end (e.g. the BYD Tang now sells between ¥200,000 and ¥300,000), locally-produced Model 3 starting at ¥328,000 and a host of other models such as the NIO ES6 and Leading Ideal One priced in the ¥300,000 range, it will be really interesting to see how the two shareholders decide pricing for the new Denza.

Competition is much more cutthroat now than it was five years ago when the first Denza was launched. The new Denza may have the looks, the performance, the styling and more importantly a much wider distribution network at its disposal, how it will be priced and how it will convince potential consumers to trade down from the EQC and trade up from BYD for Denza remains a huge issue for both shareholders. It will be a success if it can sell in its first year on the market the same number of vehicles the old Denza had sold in its entire history.

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