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Mercedes and Infiniti team up on $1.4 Billion Mexico Plant

Karla Salinas | 01.07.2014

Daimler AG (DAI) and Nissan Motor Co. (7201) will jointly produce luxury vehicles at a new 1 billion-euro ($1.4 billion) factory in Mexico, the biggest project to date in their four-year-old partnership.

Daimler AG (DAI) and Nissan Motor Co. (7201) will jointly produce luxury vehicles at a new 1 billion-euro ($1.4 billion) factory in Mexico, the biggest project to date in their four-year-old partnership.

The German and Japanese automakers will assemble as many as 300,000 Mercedes-Benz and Infiniti compact cars at a facility near Nissan’s plant in Aguascalientes, the companies said today in a joint statement. The first cars are due to roll off the line in 2017.

“This project shows how our collaboration, which began in Europe, has become global in scope,” Carlos Ghosn, chief executive officer of Nissan and its French affiliate Renault SA (RNO), said on a webcast with reporters. “I am now even more optimistic” on the future of the cooperation.

Daimler and Renault-Nissan have worked together since 2010 to better compete with the likes of Volkswagen AG, which can spread costs across a stable of 12 brands. The partnership, which was initially focused on small cars and delivery vans, has since expanded to include motors and transmissions, while Infiniti’s Q30 hatchback will use underpinnings from Mercedes.

The latest step would help Infiniti further expand its lineup and lower development and production costs for Mercedes as the Stuttgart-based carmaker seeks to surpass Bayerische Motoren Werke AG in sales and profit by the end of the decade.

50/50 Venture

Daimler and Nissan will establish a 50/50 joint venture to manage the construction and operation of the Mexican factory, which will eventually employ almost 5,700 people. Production of Infiniti models is slated to start in 2017, with Mercedes cars to follow a year later. The companies expect to reach full capacity at the site in 2021.

“The advantage is the cost savings that will come from the bigger volumes,” said Juergen Pieper, an analyst with Bankhaus Metzler in Frankfurt. “This is particularly important in the small-car segment,” where profit margins are thinner.

Backed by the cooperation, Mercedes plans to add to its compact lineup, which will include five cars when the wagon-like Shooting Brake version of the CLA sedan goes on sale next year. The underpinnings will be co-developed with Infiniti and the vehicles will also be produced outside Mexico, the companies said. The two upscale brands will cooperate to ensure their respective models differ from one another, they said.

Shared Engines

The auto-assembly agreement is the latest cooperation between Mercedes and Infiniti. Production of four-cylinder engines, which will be used in the Mercedes C-Class and Infiniti Q50 sedan, started yesterday at a Nissan plant in Tennessee. The new Mercedes-Infiniti factory will be adjacent to Nissan’s $2 billion plant in Aguascalientes, which opened in November. The Yokohama-based carmaker assembles the Sentra compact sedan at the plant.

With the decision, Mercedes is following Audi AG (NSU)’s move to produce in Mexico. The world’s second-largest luxury-car brand plans to start assembling sport-utility vehicles in San Jose Chiapa in 2016. BMW is considering sites in Mexico for a new North American factory, people familiar with the matter said in April.

Renault and Daimler already cooperate on mass-market compacts. The French manufacturer’s Twingo shares the same underpinnings as an upcoming four-seat version of the Smart city car. Both models will be built in Renault’s plant in Novo Mesto, Slovenia.

Daimler Chief Executive Officer Dieter Zetsche, who unwound the automaker’s merger with Chrysler, said the cooperation with Renault-Nissan is successful because the companies are independent. “We work together because we want to, not because we have to,” he said on the webcast.

Source: bloomberg.com