By Norihiko Shirouzu

BEIJING/SHANGHAI – Mercedes-Benz is investing more in its cutting-edge research capabilities and design capabilities in China, as China shifts to the east.

Mercedes-Benz has doubled the number of bases in Beijing, Shanghai and Shanghai in an effort to make a home away from home. This is in line with regulations and consumer preferences in a market where China and Germany are outstripping both.

Three years after initially announcing plans to strengthen its research and development (R&D) in the country, the luxury car brand owned by Daimler (OTC:) will unveil its new Tech Center China in Beijing this month.

Reuters spoke to four individuals who were close to the tech center and brand’s Chinese design department about the new China strategy. They aren’t allowed to talk to the media so they declined to identify themselves.

With 1,000 engineers, the new tech centre is more than three times the size of the one Mercedes-Benz opened in 2014 and the first outside Germany that can test “everything”, putting it more “on par” technically with the far bigger R&D headquarters near Stuttgart, a person close to the centre said.

Mercedes-Benz also made significant investments in the upgrading of its Chinese design studio. The entire team was moved from Beijing to Shanghai by the company, which is a metropolis with approximately 25 million inhabitants and known as China’s car design capital.

Mercedes-Benz should be able to expand its Chinese operations.

China saw a 12.5% increase in car sales, reaching a record 774,000. This is, despite the Pandemic. China was streets ahead of the next two markets: Germany, which has 286,000, and the United States, with 275,000.

It sold about 80% of its cars in China, often with a variety of China-only models and features. Asia accounted for nearly half of its worldwide sales by 2021.

China’s automotive market has been the most important in the world for the past nine years. It is predicted that it will grow with steady growth. The demand is projected to rise to 35 million units by 2030 from 25 million currently.

“SECOND HOME”

Mercedes-Benz is being pressured by local EV startup companies like Xpeng, Li Auto, and Nio (NYSE) for their sleek vehicles and high-tech features that are tailored to Chinese customers.

The strategy to China for the German carmaker is called “second home”. It aims to improve its design and technology, adapt quickly to changes in the environment, as well as to secure the Mercedes-Benz brand.

Bill Russo from Automobility Ltd said that China’s expectations are for an in-car digital experience. This must be created and implemented by localised experts who live and work in China.

On average, Chinese Mercedes-Benz customers are 36 years of age – about 20 years older than Germans – are less tech-savvy and more tech-savvy. However, they also tend to be disloyal.

Mercedes spent $170 million ($1.1 billion) to upgrade the center. The majority of this investment will allow Mercedes to perform local testing, rather than sending new technology back home from Sindelfingen in Germany.

According to a source close to the centre, “The key reason we are expanding is to be closer to these customers and to their needs.” The source said that they now have all of the tools necessary to thoroughly test the vehicle.

According to two sources, the centre includes modern chassis test benches as well as others for noise, vibration, harshness and battery life. Furthermore, it can be swapped in with newer technology as technology improves.

Mercedes also has added features that are important to Chinese customers such as an electric vehicle team (EVT) dedicated to smart, connected technology.

One source said that tech-savvy customers require you to be very close in intelligence, connectivity and autonomy.

THINK ROSE Gold

According to all four sources, a greater focus on China’s customer over the past few years has already paid off.

Research into luxury products buyers in their twenties led to a drive to make China-only colors. Although it is easy to be seen as tech-savvy and hip, there have been renewed interest in designs inspired by China’s ancient monarchies.

The studio created “rose gold metallic” as part of its research. This variation on rose tones was first used in 2018 for exterior colours for Mercedes-Benz A-Class sedans. Rose gold is now available in new EVs like the EQA or EQB, as well as an interior tone for the EQC.

According to a source, “Global ideas inspired by China” was one of the sources close to the studio. He added that Mercedes must cater first to China, but some China-grown ideas can go global.

Partly, the move to Shanghai of the studio was driven by the necessity to greatly speed up the design process and make it digital. Shanghai houses most of virtual model-making vendors.

Source close to the studio said that Shanghai was a better place than Shanghai to hire design talent. It is situated just north the prime waterfront district The Bund.

Designers usually sketch the car onto paper. Then expert modellers help mold them into clay models. Mercedes-Benz intends to do away more or less with physical models.

The new method will allow the Shanghai studio to review their designs with virtual tools. However, it won’t be able to use quarter-size physical models as a result of this process.

According to a source, if the studio wins the competition, it will be sent to Germany by modellers and designers for life-size designs.

ROUTES

Daimler is attempting to increase its China technology development at a moment when Beijing policymakers are more in sync than ever.

Beijing’s recent regulatory crackdown has cost billions to some of China’s most well-known firms and has had a negative impact on the sector. 

This is partly due to the fact that technology from other countries has been difficult for foreign companies in order to obtain it because of tensions between China and America.

China’s policies and laws are constantly changing, from battery technology to smart connectivity to autonomous driving.

According to one contact close to Daimler, “If you do not respond to the change once regulations and policies kick in it’s too late.”

With that in mind, the tech centre works closely with the brand’s external affairs team which keeps its finger on the regulatory pulse – and that has proved key when it comes to so-called vehicle-to-everything, or V2X, technology.

V2X is responsible for controlling communications between the car and everything outside. This includes 5G cellular signals, low-earth-orbit Satellites and smart traffic lights.

China’s new safety rating system for vehicles, the New Car Assessment Program (NCAP), will require them to have full-fledged V2X capability in order to be eligible to receive a Top Safety Ranking. This is due to take effect in 2025.

We knew that this regulation would be put into effect. Sources at the tech centre said they developed V2X self-drive technology to conform with new laws and completed it well before the new regulations took effect.”