FRANKFURT (Bloomberg) -- Daimler and joint-venture partner Beijing Automotive Group will spend 1 billion euros ($1.37 billion) to more than double Mercedes-Benz production capacity at their Beijing plant to keep pace with rising demand.
The factory, which builds the C-class and E-class sedans and GLK sport-utility vehicle, will be able to produce more than 200,000 autos in 2015 and may be expanded further if sales continue to surge. The plant will add assembly of the GLA compact SUV next year.
Mercedes deliveries in China surged 57 percent in the first two months of 2014.
The investment is part of a 4 billion-euro Chinese spending project that will include expanding the model lineup. Daimler and BAIC will also increase engine production at their Beijing plant from the initial annual capacity of 250,000 as auto sales rise.
"We are deeply rooted in China," Daimler CEO Dieter Zetsche said in a statement on Friday. "The Chinese automobile market continues to have great potential. We want to participate in this growth."
China is crucial to Zetsche's target for Mercedes to surpass BMW and Audi in global deliveries by the end of the decade. Success in the country was hampered in the past by separate sales organizations for imported and locally produced cars, which led to price cuts as the two competed with one another.
Daimler in 2012 announced a reorganization of its China operations that included naming Hubertus Troska, a former truck-division executive, to Daimler's management board as chief for the country, adding dozens of dealerships, opening the company's first engine factory outside Germany in Beijing and merging the sales entities.
Daimler also completed the purchase last November of a 12 percent stake in the BAIC Motor unit of Beijing Automotive for 625 million euros.
Zetsche is backing his effort to regain the top sales position that Mercedes lost to BMW in 2005 with the planned rollout of 30 new models through 2020, a dozen of which will have no predecessor. The brand's sales worldwide are up 17 percent through February, beating gains of 6.6 percent at BMW and 9.3 percent at Audi, helped by the surge in China.
Mercedes has plans to sell 300,000 cars in China in 2015, including vehicles imported into the country. The E class built in Beijing is a stretched version of the upmarket car sold elsewhere, targeting the Chinese buyers for chauffeur-driven vehicles.
Daimler opened 75 new outlets in China in 2013, and plans to add another 50 dealerships annually this year and next.