Daimler unveils €2bn China expansion

The Financial Times, August 27, 2013

Daimler has announced plans to export critical engine components from China for use in its German-made vehicles as part of a fresh €2bn expansion effort intended to kick-start its business in the world’s largest car market.

Hubertus Troska, a Daimler board member and Beijing-based chairman of the company’s Greater China unit, said on Tuesday: “There is a recognition [at Daimler] that we need to improve our position in China vis a vis some of our competitors.”

The expansion plans, which will double capacity at Daimler’s passenger car joint venture in Beijing, include construction of the luxury carmaker’s “first fully fledged engine factory outside Germany”. Frank Deiss, president of Beijing Benz Automotive, said critical engine components including crankshafts, cylinder heads and engine blocks would be exported back to Germany.

Mr Troska added: “The quality level that we are putting in here will be like no other engine plant that we have outside Germany and is to the same level as our German plants.

“Customers will never know – nor do they need to worry – where the parts come from . . . Beginning next year we’re actually going to ship the parts to Germany. They’re waiting for them.”

Bill Russo, a Beijing-based automotive consultant said: “Powertrain systems are usually the last major component technology to be localised. Daimler arriving at this stage is a huge step and using Chinese-sourced components outside of China is also significant.”

Mr Troska is the first board member posted by Daimler to China, where it has long lagged behind German rivals BMW and Audi. “[Board representation] is a prerequisite in order to make sure the decisions of our company will always take Chinese needs and market characteristics into consideration,” said Mr Troska.

Ivo Naumann, managing director at consultancy AlixPartners, added: “The appointment of a board member to China is a reflection that they understand this is one of the two or three core markets for luxury cars and if you are not successful here it is going to be hard to achieve your global targets.”

Last year only 96,500 of the more than 206,000 Mercedes-Benz cars Daimler sold in China were manufactured by its Beijing joint venture – a local production rate well below those achieved by BMW and Audi. Daimler said it intended to boost sales to 300,000 units a year by 2015, with two-thirds produced in China.

Analysts also point to the success of Daimler’s German rivals in developing a wider range of vehicles specifically tailored to the Chinese market, including longer cars with more room in the back seat for owners who prefer to be chauffeured in comfort through the country’s clogged city streets.

“Daimler has been behind BMW and Audi [in China] for quite a while because their product development cycle has been lagging,” said Benjamin Lo, an auto industry analyst with Nomura in Hong Kong.

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