Daimler will double production at its plant in Beijing, shown. Mercedes’ Chinese sales are down in the first four months of this year.Photo credit: Bloomberg

Daimler’s Mercedes-Benz is adding production capacity and expanding its retail network in China as the automaker attempts to catch up with premium rivals Audi and BMW.

“We recognize the strong potential of the Chinese market and we have initiated key activities for long-term and sustainable growth,” said Joachim Schmidt, Mercedes head of sales and marketing.

Daimler expects China to become its largest single market within two years, overtaking its current No. 1, the United States, and second-ranked Germany.

Schmidt said Daimler aims to sell more than 300,000 Mercedes- and Smart-brand cars in China in 2015, up from just below 200,000 last year. The automaker expects to benefit from the increasing appetite for premium cars among China’s rapidly growing middle and upper classes.

“Those customers demand prestigious brands, top products, innovations as well as excellent quality and service,” Schmidt told Automotive News Europe in an e-mailed reply to questions.

Doubling output

Daimler will more than double output at its Beijing joint venture factory with Beijing Automotive Group to 200,000 units in 2015 from 96,500 last year as part of its strategy to build locally two-thirds of the vehicles it sells in China, up from about 50 percent last year.

At the end of next year, the company will add production of the GLA crossover at the plant alongside the C class, the GLK, and the long-wheelbase E class.

Increasing sales in China will boost Daimler’s bottom line because most of the automaker’s models sold in the country are high spec.

“Premium cars in China are often chauffeur-driven so the vehicles that customers ask for are those with a spacious rear area where the passenger can work comfortably and enjoy high entertainment standards,” Schmidt said. “Great importance is also attached to interior comfort so most cars are sold with full equipment.”

More dealers; younger customers

Daimler is joining Audi, BMW and other automakers that are rapidly opening new dealerships in inland Chinese cities. Mercedes currently has about 260 dealerships in China, while its German rivals each have more than 300.

About 50 Mercedes dealers will open every year in an expansion focused on regional markets and second-, third- and fourth-tier cities.

The automaker sees a big interest for hybrid technology among customers in China. Speaking at the Shanghai auto show in April, r&d chief Thomas Weber told Automotive News Europe: “The Chinese customer is more than 10 years younger than the European buyer and is very interested in the latest technology.”

Daimler will introduce a plug-in hybrid version of its new S class in China next year. China accounts for half of the S-class’ global sales. The automaker will build and sell a hybrid version of its E class in China.

In November, Daimler and partner BYD will unveil at the Guangzhou auto show a production version of an electric car based on the Mercedes B class with deliveries to customers scheduled to start next year.

Success in China is crucial to meeting Daimler CEO Dieter Zetsche’s goal of overtaking BMW, the No. 1 premium brand by vehicle sales, and No. 2 Audi by the end of the decade.

At the automaker’s annual meeting in March, Zetsche said: “China is a key element of our Mercedes-Benz 2020 growth strategy.”

Between 2006 and 2011, Mercedes had the highest average annual increases in sales of all premium brands in China, but the growth slowed as the automaker was hit by troubles in its retail network. “We have to change this situation – and we will,” Zetsche said.

China boss

Daimler has appointed former Mercedes heavy-truck unit manager Hubertus Troska as its first board member responsible for China.

The company has created a new sales company to integrate sales and marketing, aftersales, dealer expansion, used-car and fleet-car sales, as well as dealer and workshop training, in a single organization. Previously, there were two sales channels – one for imported and one for locally produced cars.

The automaker has much to do to catch rivals. Mercedes and Smart’s combined car sales in China fell 7 percent to 61,681 in the first four months while Audi’s deliveries rose 14 percent to 141,520 and BMW reported a 9 percent increase to 116,381 for its BMW, Mini and Rolls-Royce brands.