Mercedes-Benz is finally investing in a wholly owned assembly plant that will bolster its position as Russia's leading premium car brand.
IHS Markit perspective
- Significance: Mercedes-Benz cars has announced that it has begun the construction of a manufacturing plant near Moscow that will initially build the E-Class, and which is scheduled to go online in 2019.
- Implications: Despite being the most popular premium passenger car manufacturer in Russia, Mercedes was until now the only one of the big-three German volume premium brands without a manufacturing presence in the country. The new plant should further strengthen its competitive position in the market.
- Outlook: Given the ongoing hardships that the Russian economy is still experiencing, this is a bold decision from Mercedes-Benz cars as the company looks to ride the wave of the anticipated slow recovery in the passenger car market. However, it should also be noted that even in the accelerated bear market of recent years Mercedes has managed to significantly outperform the market, while this investment represents the first new major OEM investment in Russia since the start of the most recent financial recession in the country.
Mercedes-Benz passenger cars has announced that it has begun construction of a new passenger car plant near Moscow which will serve the Russian market, according to a company statement. It is investing EUR250 million (USD278.62 million) in the plant which will initially manufacture the E-Class and which is scheduled to begin production in 2019, adding assembly of the GLE, GLC and GLS models at a later date. Mercedes has long been considering such a move and the new plant will be managed by a newly created entity in the form of Mercedes-Benz Manufacturing RUS (MBMR), which will be headed by Axel Bense. Commenting on the move Mercedes-Benz's board member for production Markus Schaefer said, "Establishing a passenger car production in Russia is a strategic investment in an important sales market for Mercedes-Benz. We are extending our local footprint and, at the same time, strengthening our global competitiveness." He added, "With the fully flexible production of the E-Class Sedan and the SUV models, we will produce our bestsellers for the regional market at the Moscovia plant. I am convinced that Axel Bense, who has many years of experience in the Russian market, will implement the project very successfully. "
The plant will employ Mercedes-Benz's future production strategy and the latest automotive plant technology, being a "full-flex assembly" plant configured for maximum flexibility, meaning that several vehicle architectures can be produced on a single production line. The plant will also feature the latest Industry 4.0 digital production techniques, such as autonomous material flow and convertible plant technology. Some of these techniques are merely the latest in the long-established "just-in-time" production measures that ensure component and material inventories are kept as lean as possible, but combined with the latest digital and robotisation can create even more powerful efficiencies and savings in the industrial production environment. The Moscovia plant will also be connected with all Mercedes-Benz sites around the world which means that every single system and robot can be controlled and reprogrammed remotely, while a "one-roof" concept aids rapid unit production times, with short physical distances between different shops and units of production.
Outlook and implications
A Mercedes-Benz cars plant in Russia has long been touted, and given that its chief rivals BMW and Audi already have contract assembly and wholly owned assembly set-ups in place, it is perhaps surprising that it has taken so long. The uncertainty caused by the unstable macroeconomic situation over the past three years has certainly played its part, and looking at the sales numbers Mercedes-Benz has actually been one of the strongest OEM brand performers in Russia in recent years in comparison to the falls experienced in the wider market. It was perhaps wise for the firm's management to sit tight while sales numbers remained relatively positive and wait until signs of recovery before approving the plant investment. For example in 2015 when the overall light-vehicle market contracted by a massive 34.5% according to data compiled by the Association of European Businesses (AEB) the Mercedes-Benz passenger car brand managed to limit its sales decline to just 14% y/y and comfortably outperformed BMW and Audi despite the latter firms' local manufacturing presence. Mercedes has a very strong brand presence in Russia, especially with its higher-end vehicles, which are popular with the upper middle classes and wealthy Muscovites in particular. It is also possible that the company may add S-Class production at some point as a result, but at this time building the E-Class and range of sport utility vehicles (SUVs) it is opting for appears the correct strategy, while the timing of the investment also appears considered. By the time the plant goes on line in 2019, the market recovery – which after three consecutive monthly volumes increases is starting to show signs of being sustainable – is likely to be accelerating and the new plant will allow the Mercedes-Benz car brand to take advantage of this. Currently IHS Markit forecasts that Mercedes-Benz car brand sales, which peaked at nearly 50,000 units in 2014, before falling to 37,000 units in 2016 during the economic slump will recover back to 56,000 units by 2021, keeping it well ahead of its rivals to the tune of more than 20,000 units and the new plant will only further consolidate this segment-leading position in the market.
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The above article is from AutoIntelligence Daily by IHS Markit. AutoIntelligence Daily provides same-day analysis of automotive news, events and trends. Get a free trial.