Smart Europe CEO: 'We're no longer just a niche'

From its inception, Smart has focused on being an urban transportation solution, with very small cars such as the ForTwo and ForFour that can dart around tight city streets and park in tiny spaces. But after becoming a 50-50 joint venture of Geely and Mercedes-Benz, Smart Automobiles is preparing to relaunch as an electric-only brand with larger vehicles, including the new #1 (pronounced hashtag 1) -- but still wants to satisfy existing customers. Smart Europe CEO Dirk Adelmann spoke with Automotive News Europe Associate Publisher and Editor Luca Ciferri and News Editor Peter Sigal about how the once-niche brand plans to expand its customer base.

The #1, at approximately 4.3 meters long, will be the largest Smart ever. Will your buyers be conquests, or current Smart customers?

That was very speculative until recently, but now we have data from our launch edition, which is 1,000 units. We were assuming much more than 50 percent would be conquests, because this is a much bigger vehicle than the ForTwo or ForFour. But we were surprised to find that in our major markets, 80 to 85 percent of sales could be to our current customers. We can be a primary car for families, which we have not been with the ForTwo or ForFour. So, it's a different target audience. It’s also much younger than our current customers. But the conquest rate is not as high as we would have expected, and what we planned for, which is good news.

What is the age of the average Smart owner and what is the age of the customers for the #1?

With the #1, we are targeting Generation X (born in 1965-80), Generation Y (born in 1981-1996) and young families. ForTwo customers are all ages, from students to grandparents, but the average age is definitely higher than what we see for the #1.

Where are your conquests coming from?

We are trying to tap into all the current leading premium competitors, mainly in the B-segment (small), but also in the C-segment (compact), as the #1 is large for the B segment. We are also looking at people upgrading from the A-segment (minicar).

What sales volume are you expecting?

Until recently, we had a clear volume target. Why do I say that? Because at the moment, nobody knows what the production level will be, because we are affected by the chip shortage and other supplier bottlenecks. But what you can count on is that with our lineup fully engaged in the next couple of years, we plan higher sales than we had in the past with the ForTwo and ForFour, at least in Europe. Our peak volume was in 2006, and that was around 130,000 units in Europe. Our retail network is prepared for that scenario.

When will the first #1s arrive in European showrooms or in customers' hands?

We will start pre-orders in September, with the first deliveries to Germany in December. Spain, Italy and France will follow in January and February. We will sell it in 13 markets in Europe, plus China, Malaysia and Thailand. Other countries are under evaluation for the second wave of sales.

What can we expect on pricing? Mainstream full-electric small SUVs tend to start about 35,000 euros, with premium models about 45,000 euros.

It's rather difficult at the moment to predict the price. With our brand positioning, we are clearly differentiated from the Mercedes side; where they are luxury, we are more “light premium.”  We are also the only vehicle in the segment that has a purpose-built electric SUV, which gives us quite a few advantages, and we think customers will see that. We have an extremely spacious interior and a compact exterior for the segment. So we are going to be positioned a little bit above [mainstream models]. We will give exact pricing in September, but it will be oriented towards the more premium competitors in the segment.

Mercedes-Benz CEO Ola Kallenius said recently that the brand will reduce its small car lineup as part of a broader move upmarket. Does that create more space for Smart in Europe?

Absolutely. There are three members of the Mercedes board on our supervisory board, and they monitor and co-direct our product portfolio as well as our positioning. Our clear role within Mercedes-Benz dealerships is targeting young customers and getting customers from the B- and C-segments to maybe later move to Mercedes-Benz. Those have been Smart targets for many years. Now that we have heard that the A-Class and B-Class will be discontinued, we have not only a niche, we have a huge market out there to bring people maybe from light premium later on to luxury. Smart's role is evolving a bit, but we have much, much more space to grow. We are no longer just a niche in the A-segment.

With 440 km of range, the #1 can be the primary car in a household, not just a secondary option. Would you consider a smaller, less expensive battery for urban buyers?

We have just received type approval from the KBA in Germany, so the 440 km range is confirmed, and that’s a big leap forward in the segment. With that comes a 22-kilowatt onboard AC charger, which is not standard in the segment, alongside a 150-kW DC charger. So we are overachieving on charging and range in the segment. Now, we don't see the demand for a smaller battery in the B-segment. But if the market goes into the direction of a smaller battery, we will be able to answer that demand because we are on the SEA (Sustainable Experience Architecture) platform from Geely. That allows a lot of configurations in terms of wheelbase, battery pack, motors -- one motor or two motors. Which would also allow an all-wheel-drive configuration.

What kind of charging network access are you offering to Smart customers?

We have selected Digital Charging Solutions (DCS) as our partner. They are providing our customers with 280,000 public charging points, with at least 20,000 to 30,000 DC charging stations. Those stations are accessible via our charging card from DCS, and are fully integrated into our Smart companion app and the head unit of the vehicle. One part of EVs is the vehicle itself; the other part is the charging at home, at work and in public. And you need to offer to the customer a solution that incorporates all of that.

How many dealers does Smart have in Europe now and do you plan to maintain that footprint?

We will be going down roughly 30 percent in the investor structure (independent and Mercedes' own retailers) and roughly 50 percent in the point of sales. So, we will have roughly 160 partners in Europe and 300 points of sales. On the aftersales side, we will benefit fully from the current network, which is a combination of Smart and Mercedes dealerships. This is a huge advantage that Smart has over some of the newcomers that are entering Europe.

Smart is counting on a significant percentage of online sales. What will the digital buying process look like?

We have set up an e-commerce platform where the customer can do everything online. How are our agents involved? As a customer, you can decide if you want to stay online for each step, or you can go offline to get a consultation, a test drive, and obviously delivery at your local Smart partner -- but the partner already knows you because he's fully integrated into the online journey. Smart partners will not buy and sell vehicles in the future. It’s a direct sales model, so we are selling to the end customer. The partners are consulting and being intermediaries in the sales process.

Will this be a pure agency model, with no price negotiations, and partners will get a fee rather than a commission?

Correct.

Will the ForTwo continue to be sold with a traditional retail model while the #1 is sold via the agency model?

The ForTwo will continue to be offered under Mercedes, and it is not part of our Smart Europe entity. I also have to say that the ForTwo electric is quite successful in Germany at the moment, with a wait time of roughly 12 months. It will be offered in parallel with the #1 for quite some time. Would it be tricky for customers if there is a salesman offering discounts on the ForTwo but not able to for the #1? We could see that, but nobody is discounting vehicles currently because demand is by far exceeding supply, so this is working in our favor. We don’t see a huge gap in terms of customer approach.

Geely has been a leader in the subscription model, with Care by Volvo and Lynk & CO. Is that an option for Smart?

Smart has always been a pioneer when it comes to new ownership models, for example with Car2Go (which used Smarts) as the first company to go into car-sharing. We foresee a huge portion of ownership of the #1 as operating leases, so that’s our main model for Europe. We will also have pilot subscription models, starting with Germany. That is a very, very interesting segment because it's somewhere in between short-term renting and an operating lease.

Once you have established the #1 in Europe, where do you plan to go from there? Recently some camouflaged photos of what reports say is the #2 have emerged that show a coupe-crossover design.

The SEA platform is very flexible and we can imagine a lot of vehicles on it. We could go back to where we have been with the ForTwo, and we could also go in the direction of a C-segment car. 

The ForTwo is still very popular, especially in cities such as Paris, so clearly there is a demand for a very small, maneuverable, electric urban car. Would you consider a replacement with the same minicar footprint?

We get that request [to continue to offer a minicar] I would say weekly, from dealers. The ForTwo is loved by many of our urban customers. For now, we are focusing on the B-segment expansion of the brand, but we have that in the back of our minds, as you can imagine.

Do you see customers continuing to want SUVs and crossovers with the same enthusiasm, or are we heading into a mix of different body styles, including vehicles that are more aerodynamic to optimize range, and also to draw buyers who want to stand out?

If you look back six years, SUVs had a market share of about 25 percent in Europe. It’s almost 50 percent now. That means it’s still the way to go if you really want to do volume. And on top of that, the batteries take up a lot of space in a dedicated electric vehicle. So from a design perspective, the SUV is the perfect body type for an EV. The first car in our lineup will be an SUV, but that doesn’t mean that we will stick with them for our second, third, fourth and fifth cars.

So, you could envision a full lineup, where someone can walk into a Smart dealer and not walk away disappointed that they couldn't find the car they wanted?

There are obviously limits in relation to the Mercedes-Benz brand, so we would most likely not go into a super-luxury direction, because there are already cars in the showroom that cover that. But all other options are open.

How has your production in China been affected by the recent coronavirus shutdowns?

Our supplier base is in and around Shanghai all the way to Xi'an, where the factory is. The shutdown in that area affected us heavily. Nevertheless, the China launch took place successfully earlier this month. We have stopped taking orders in China because we are in a sold-out situation, and our 2022 production is already earmarked. The shutdowns affected us also because our suppliers’ workers were in lockdown. They couldn't go to the factories. It was a huge hit for us.

Do you have any clarity on when normal production levels will return?

We could already go back to a normal production level, depending on what you are willing to pay for chips. It's a combination of shortages and extremely high prices due to people now speculating on scarce parts. That is not only affecting us, of course, but you can imagine in the B-segment you are facing a different margin situation than in the Mercedes S-Class segment.

Is there any sort of prioritization within the various Geely brands in China as to which brands get chips or components that might be in short supply?

We reached out to both our parents -- Mercedes and Geely -- and asked for support in terms of procurement. Both were very active and very supportive. With us relaunching our brand in China as well as in Europe, that is a chance you only get once. 

What chips are scarcest right now?

The main bottlenecks are for ADAS functionalities, but also even for headlights or ambient lighting. Onboard chargers are affected. So it's all over the place. But there is an underlying shortage, and part of it is that EVs need a lot more chips than an internal combustion vehicle. Both suppliers and automakers were surprised by the high demand for electric vehicles. So, it's a mix of different factors. It’s a perfect storm that is hitting not only us, but many others.

Have you run into higher logistics costs, as you are shipping cars from China to Europe?

Costs to get our vehicles from China to Belgium increased dramatically in the last couple of months. But it's not only prices -- there are also bottlenecks. Some ships are still locked into areas where you can't get them out. Some harbors, like Shanghai, still have to get back to normal after the lockdown. And Singapore was heavily affected, so you have several bottlenecks that lead to significantly higher prices. We do have long-term contracts with shipping partners, but they are also struggling at the moment to fulfill requests.

How long does it take for a Smart built in China to be delivered to Europe?

Including inland transportation, deep sea transportation, customs clearance, processing activities, then another two legs of transportation in Europe, about 10 to 11 weeks.

Is there any relationship between Smart and Renault anymore?

Not with Smart Europe.

So, Smart Europe and Smart Mercedes are essentially separate entities at this point, in sort of a transition period?

Correct. Smart Europe is a subsidiary of Smart Automobile Company, which is 50-50 owned by Geely and Mercedes.