Daimler AG and Beijing Automotive Industry Corp. have signed an agreement to spend 2 billion euros to build four new models in China, expand engine production and construct a new r&d center.
In a written statement, Daimler CEO Dieter Zetsche said the investment will allow Mercedes to expand its lineup of compact luxury cars.
"As early as 2020, at least one in five premium compact cars is expected to be sold in China," Zetsche said. "In light of this enormous growth potential, we are resolutely switching to attack mode with the local production of our new compacts."
This year, Daimler will launch production of the GLK compact SUV, followed by three compact car models starting in 2013. Daimler did not identify the three compacts.
Daimler's joint venture with BAIC, called the Beijing Benz Automotive Co., currently produces up to 80,000 C-class and "stretch" E-class sedans in China each year. Daimler said it will expand production, without detailing how much capacity it plans to add.
The joint venture also will build a new engine plant, which will start producing four-cylinder gasoline engines in 2013. Initially the facility will produce 100,000 engines a year, with plans to expand annual production to 250,000 units.
The new technical center will handle vehicle testing and adaptation, plus r&d with suppliers.
Daimler's announcement comes as the German automaker is locked in a three-way race with Audi AG and BMW AG to dominate China's booming luxury market.
Last year, Mercedes-Benz sales in China soared 112 percent to 148,000 units. In the first five months of 2011, sales jumped 62 percent to 75,896 units. Yet Mercedes still trails its two German rivals in China.
To boost sales, Mercedes-Benz also is expanding its dealer network in China. The company has 160 dealerships in 80 cities, and plans to add 30 new dealerships this year.
The automaker is starting to locate new dealerships outside of China's prosperous Tier One cities along the coast, now that fast-growing cities in China's interior are generating demand for luxury cars.