Chinese automaker teams up with Europe's biggest auto engineering company to produce high-performance cars exclusively for mainland consumers

Like many Chinese automakers dedicated to developing their own brands, BAIC Motor Corp hit a wall during its expansion. Its own brand was losing ground to foreign competitors and has been unsuccessful in breaking free from its public image as a budget brand.

But instead of taking the route of establishing a research and development center in Europe or in the United States, as other major automakers in China have done, BAIC has chosen to establish a joint venture on the mainland.

On March 12, BAIC Motor signed a major agreement with MBtech, Europe's biggest auto engineering and consulting services provider, to form a joint venture called BAIC-MBtech Development Center Co. BAIC will hold a 51 percent stake, and MBtech the remaining 49 percent.

The company will establish headquarters in Beijing and an additional office in Stuttgart, Germany, where MBtech is based.

Xu Heyi, chairman of the BAIC Group, BAIC Motor's parent company, says the two companies have begun working together over the last few months and hopes to introduce its first car model by the end of the year.

The model will not be a budget vehicle, but a "high-end one that will be good enough to compete with international brands".

In 2010, BAIC Group, a leading auto manufacturer in China in terms of sales volume, established BAIC Motor to develop a domestic line of cars. At the end of last year, BAIC Motor secured a listing on the Hong Kong Stock Exchange.

BAIC Motor's partner, MBtech, was founded in 1994 as a subsidiary of Daimler AG, initially functioning as an engineering think tank. In 2012, Daimer sold 65 percent of MBtech to the French company Akka Technologies.

MBtech employs more than 3,000 engineers and provides research and development for automakers worldwide.

Akka's clients include Renault, Daimler, BMW, Audi and Volkswagen and the company provides consulting services to aviation giants such as Airbus, Bombardier and Boeing. Last year, turnover for Akka reached $1 billion (about 940 million euros).

"By forming this joint venture, we can take advantage of MBtech's global experience and improve BAIC Motor's home brands," Xu says.

BAIC Group has two successful joint ventures, with Hyundai and Mercedes-Benz, and both are profitable. But BAIC Motor's domestic brands have yet to show that they are strong enough to compete with international brands.

Last year, of the 2.4 million cars that BAIC Group sold at a turnover of 300 billion yuan ($48 billion; 45 billion euros), only 300,000 were domestic models.

Besides rolling out its anticipated high-end model, the BAIC-MBtech joint venture will also offer support for BAIC's new-energy models and four-wheel drive technologies, the company says.

Another factor that drove the joint venture forward was a cooperation framework between BAIC Group and Daimler AG, Xu says. As a major stakeholder of BAIC Motor, Daimler has pledged to support BAIC Group's plan to develop domestic brands. The deal also creates a cross-shareholder deal between BAIC and Daimler in which both hold a small percentage of the other company.

"This is one step toward BAIC's internationalization goal," Xu says. "After nearly 10 years of making domestic brands, we have realized that we have to use international resources to make international-standard vehicles."

While BAIC Motor is not the first automaker in China to establish a joint venture R&D center, Li Feng, president of BAIC Motor, says the new development center will be the first to design cars only for China.

So who was the first? That distinction goes to the Pan-Asia Technical Automotive Center Co, established in 1997 by SAIC and General Motors, each with a 50 percent stake. But the center served international brands under GM's umbrella, and didn't develop any mainland brands.

Li says designing an attractive Chinese car is no longer a major issue for Chinese automakers, though they still have a long way to go to build high-performance vehicles.

"For example, we know Chinese cars can be noisy on the road, but we have no idea which part generates such a loud noise.

"Today, Chinese automakers can easily assemble a good-looking car but they are not capable of building an easy-to-control and steady-running vehicle," Li says.

He says the joint venture will help understand the auto technologies that Mercedes-Benz sold to BAIC Motor over the past few years and help transfer the technologies BAIC bought from European high-end brand Saab in 2009. Li says the BAIC Motor and MBtech venture will use Saab's technological platforms in its future models for the Chinese market.

"The final goal is to make our cars low-carbon, smart, lightweight and electrical, which will also be the main features of future passenger cars," Li says.

Nicolas Valtille, MBtech managing director and board member for Akka Technologies, says MBtech has been in China for many years, though this is the first joint venture it has established with a Chinese manufacturer.

"This is also the first case in the world that a joint venture is established between an engineering and consulting company and an automaker," he adds.

Valtille says it will provide technological support to design BAIC's passenger cars and auto parts.

"On the one hand, this joint venture will help BAIC strengthen its brand, and on the other, we will have access to more opportunities in the Chinese market," he says.

Jean-Franc Ricci, executive board director of Akka, says producing high-end autos is the trend across the Asian continent, and it is Akka's job to transfer its experiences in Europe to the Chinese market.

"We have served premium brands such as BMW and Audi and we know how to build a world premium brand."

Ricci adds that Akka also has experience in building local brands.

"Since we were established in 1994, we have offered technological support for Renault to develop their cars. Now we are doing a similar thing with BAIC."

Ricci says China is the company's future.

"I hope we will be as successful in Asia as in Europe."

Akka also hopes to apply their expertise to China's aviation industry if the opportunity presents itself, Ricci adds.

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(China Daily European Weekly 03/20/2015 page22)