In the presence of Germany’s Chancellor Dr. Angela Merkel and Chinese Premier Li Keqiang, Daimler AG and its Chinese partner BAIC Motor Corporation yesterday signed an agreement on the localisation of further Mercedes-Benz compact car models beyond the GLA-Class at Beijing Benz Automotive Co., Ltd. (BBAC), the production joint venture of Daimler and BAIC Motor.

The official signing took place with Hubertus Troska, Member of the Board of Management of Daimler AG responsible for China, and Xu Heyi, Chairman of the BAIC Group and its car division BAIC Motor.

The agreement will help Daimler strategically strengthen its local footprint, and shows the company’s strong commitment to China and its strategic partner, BAIC. Daimler and BAIC Motor will invest a total of approximately €4 billion (Rs 31,076 crore in their joint venture BBAC by 2015, including yesterday’s pledge of €1 billion (Rs 7,769 crore) for the localisation of additional Mercedes-Benz compact car models.

Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars: “Today’s signing shows again that we are both committed to our long-term partnership with BAIC and confident in our future in the key market of China. This strategic investment in the localisation of compact cars will give us better access to the huge growth potential that this segment offers in the mid-term, and so pave the way for Mercedes-Benz’s sustainable growth. With the all-new GLA-Class, we will lay the foundation starting early next year.”

The existing production capacities at BBAC for the C-Class, the all-new long-wheelbase version of which started rolling of the production lines just this July, the long-wheelbase E-Class, and the GLK-Class will be more than doubled to over 200,000 units per annum in 2015. The GLA-Class compact SUV will go into production as Mercedes-Benz’s first locally produced compact car model early next year. It will be produced at BBAC’s brand-new compact car site, whose cornerstone was laid in September 2012.

“Continuous investment in localisation and a close cooperation network with strong partners has and will always be key elements of our strategy in China,” stated Hubertus Troska. “Our alliance with BAIC is clear proof of this and has, as a successful Sino-German industrial partnership, grown from strength-to-strength for more than a decade. With the agreement we have signed today, we are forging ahead for sustainable and profitable growth in and with China.”

Xu Heyi added: “The agreement shows that BBAC has reached new heights in terms of R&D, manufacturing and management capabilities. It also further strengthens our Sino-German partnership. BBAC represents the strong partnership between China and Germany, and enterprises in our two countries, and has importantly increased confidence in ‘Made in China’ automotive products. By deepening our cooperation, we will further enhance BBAC’s competitiveness and continue to set new benchmarks in China’s automotive industry.”

Partnership between Daimler and BAIC

Daimler and the BAIC Group, China’s fifth-largest automotive group teamed up in 2003 for a long-term strategic partnership involving significant and continuous investments in China’s automotive industry. Daimler further strengthened the partnership just one decade later, holding a 12 percent stake in BAIC Motor since November 2013.

Among the partnership’s key joint ventures is BBAC, which has produced Mercedes-Benz cars since 2006 and engines since 2013. The Mercedes-Benz 4- and 6-cylinder engines produced at BBAC's engine plant are used in both locally produced cars from BBAC and vans built by Daimler’s local joint venture Fujian Benz Automotive Co., Ltd. (FBAC).

The production line was designed with flexibility in mind, with an annual capacity of 250,000 units for the first phase. A new BBAC R&D site became fully operational this July, and as the largest of Daimler’s joint venture R&D centres in the world provides component and vehicle testing while supporting all production tests as well as future localization.

Another strategic component of the partnership between Daimler and BAIC is Beijing Mercedes-Benz Sales Service Co., Ltd. (BMBS). This company became operational in March 2013, unifying and managing all sales and aftersales activities for imported and locally produced Mercedes-Benz cars under one roof. The establishment of the JV is a key milestone for the sustainable growth of Mercedes-Benz in China, where the company delivered 218,045 Mercedes-Benz cars in 2013 alone, an increase of 11 percent over the previous year. BMBS picked up the pace even more in 2014, with sales up to September reaching 203,485 units, a 30.5 percent year-on-year increase.

These sales figures were strongly supported by Daimler Financial Services (DFS), which has provided automotive financing in China through Mercedes-Benz Auto Finance China since 2005. Established in 2012, Mercedes-Benz Leasing Co. Ltd. added leasing services to the product portfolio. One out of five Mercedes-Benz vehicles in China is financed by Daimler.

Daimler and BAIC’s partnership extends beyond passenger cars. Jointly manufactured medium- and heavy-duty trucks have been rolling off the production lines of Beijing Foton Daimler Automotive Co. Ltd. (BFDA) since mid-2012. In 2013, the joint venture sold 103,300 Auman-branded trucks.

Photograph: A bird’s eye view of Beijing Benz Automotive Co., Ltd (BBAC): The plant is responsible for the local production of Mercedes-Benz C-, E-, and GLK-Class as well as passenger car engines. The compact GLA will go into production at BBAC in 2015.