Mercedes EQB via

BEIJING/SHANGHAI — Mercedes-Benz, the German company founded by the inventors of the motor car, is pouring more resources into its cutting-edge research and design capabilities in China as the center of gravity of the new auto world shifts eastwards.  

In a drive to create a “home away from home,” Mercedes-Benz is doubling down on bases in Beijing and Shanghai to stay ahead of regulations and consumer trends in a car market that outstrips the United States and Germany combined.  

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

Reuters has spoken to four people close to the tech center and the brand’s Chinese design studio who are familiar with the company’s new China strategy. All declined to be named because they are not allowed to speak with the media.  

With 1,000 engineers, the new tech center 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 center said.  

Mercedes-Benz has also invested significantly in upgrading its Chinese design studio and has moved the whole team from Beijing to Shanghai, a megalopolis of about 25 million people known as the car design capital of China.  

Mercedes-Benz has good reason to elevate its Chinese operations.  

Its car sales in China jumped 12% last year to a record 774,000 despite the pandemic, streets ahead of its next two markets, Germany on 286,000 and the United States with 275,000.  

About 80% of the cars it sold in China were also made there, typically with an array of China-only features and models, and Asia overall accounted for almost half its global sales in 2021.  

China’s auto market, the biggest in the world since 2009, is expected to carry on growing steadily, with demand forecast to reach 35 million vehicles by about 2030 versus 25 million now.  

But Mercedes-Benz, like all foreign automakers in China, is under growing pressure from local EV (electric vehicle) startups such as Xpeng , Li Auto, and Nio and their stylish vehicles with high-tech features tailored to Chinese consumers.  

That’s why the German carmaker’s “second home” strategy for China is focused on making its design and technology more agile, to respond quickly to the ever-shifting landscape and to firmly entrench the Mercedes-Benz brand, the four sources said.  

“The expectations in China are for the in-car experience to be served by a localized digital services ecosystem, and such solutions must be conceived and built by people that live in China and truly understand the mobile internet,” Bill Russo, head of consultancy Automobility Ltd. in Shanghai, said.  

Mercedes-Benz customers in China are 36 years old on average — roughly 20 years younger than in Germany — and are more tech-savvy, but they are also notoriously disloyal, hopping from brand to brand as trends shift.  

Mercedes has spent 1.1 billion yuan ($170 million) upgrading the center, with much of the investment ensuring it can do an array of testing locally – rather send new technologies back to the Sindelfingen headquarters in Germany.  

“A key reason for the expansion is to gain the proximity to those customers and their needs,” the person close to the tech center said. “Here, we finally have everything we need to test the car fully,” said the source.  

The center has modern chassis test benches and others including for noise, vibration and harshness, as well as batteries and e-drive powertrains and it has the flexibility to swap in new ones as technology develops, two sources said.  

Mercedes has also added functions deemed important for Chinese customers, such as a team dedicated to intelligent, connected EV technology.  

“Tech savvy customers here require that you’re very local in terms of intelligence, connectivity and autonomous driving,” one of the sources said.  

All four sources said a sharper focus on the customer in China in recent years is already paying off.  

A drive to create China-only colors led to research into the preferences of younger luxury goods buyers. While sensitive to being seen as hip and tech-savvy, there has been a revived interest in styles inspired by China’s ancient dynasties.  

As part of that research, the studio came up with “rose gold metallic,” a variation on rose gold tones adjusted for cars first used as an exterior color for the Mercedes-Benz A-Class L sedan in 2018. New EVs such as the EQA and EQB now come in rose gold, and it’s also an interior tone in the EQC.  

“Global ideas, inspired by China,” said one source close to the studio, adding that while Mercedes needs to cater to its China customers first, some China-grown ideas will go global.  

Moving the studio to Shanghai was partly driven by the need to significantly speed up the design process by making it more digital, as most virtual model-making vendors are based there.  

“Besides, Shanghai is a lot easier a place to recruit design talent,” said the source close to the studio, which is just north of city’s prime waterfront district The Bund.  

Designers typically sketch a car on paper or a touch-sensitive computer screen and expert modelers then help sculpt the designs into clay models. Mercedes-Benz plans to more or less do away with those physical models.  

Under the new process, the Shanghai studio will review its designs using virtual tools, except for the occasional quarter-size physical models, according to one of the four sources.  

If the studio makes it to the final of internal competitions for car designs, it will send designers and modelers to the main studio in Germany to create life-size models for the last round, the source said.  

Daimler’s drive to strengthen its technology development in China also comes at a time when the cost of failing to be in step with Beijing policymakers has never been higher.  

Beijing’s sweeping regulatory crackdown in recent months has wiped billions of dollars off the value of some of the country’s best-known private firms, and has weighed on the auto sector.  

That’s partly because tensions between the United States and China have created a tricky environment for foreign companies to import technology developed elsewhere.  

And from battery technology to new kinds of mobility including smart connectivity and autonomous driving, Chinese policies and regulations are shifting and evolving rapidly.  

“If you respond to change after policies and regulation kick in, it’s too late,” said one of the contacts close to Daimler.  

With that in mind, the tech center 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 controls communications between a car and “everything” outside, from 5G cellular signals to low-earth-orbit satellites to smart traffic lights and cameras on the road.  

In China, vehicles will soon have to come with full-fledged V2X capabilities to achieve a top safety ranking under a new version of its vehicle safety evaluation system, or New Car Assessment Program (NCAP), which is expected in 2025.  

“We knew this regulation was going to be implemented. We started developing those self-drive technologies including V2X to be in compliance with the new law and did so well before new regulation kicks in,” one of the tech center sources said. — Norihiko Shirouzu/Reuters