Mercedes-Benz to ramp up business with China auto suppliers

STUTTGART (Reuters) - Daimler AG will deepen partnerships with Chinese auto suppliers since they often lead United States and European rivals in key technologies for electric cars and connected vehicles, Mercedes-Benz executive Wilko Stark said on Thursday.

Stark, who is currently head of Procurement and Supplier Quality at Mercedes-Benz said the shift toward electric and connected cars has made it more dependent on battery cell chemistry and connected vehicles expertise from outside the company.

"We will think about partnerships in some areas. The role of partnerships as a whole will gain in importance," Stark said during a news conference in Stuttgart to discuss the German carmaker's procurement strategy.

Mercedes-Benz will rely more on its suppliers to take a leading role in the area of research and development as well as to identify cost-cutting potential through process optimisation, Stark said.

"We will intensify scouting of Chinese suppliers. China is more advanced than the United States in many areas of digital innovation," Stark said on Thursday.

"China will dramatically increase in importance," Stark said referring to the raft of suppliers that Mercedes-Benz does business with.

China, a market where the luxury passenger car brand sold 674,125 cars last year, is setting the pace in terms of rolling out electric mobility and digital services like mobile phone-based payment systems, giving local suppliers an edge over European and United States competitors, Stark said.

"In the area of connectivity services, the Chinese are ahead of the Americans; we have no choice but to deepen our relationship with these suppliers," he said, naming China's Alibaba and Tencent as leading players.

Daimler is also thinking about a broader alliance on batteries in view of the challenge of trying to police potential ethical or human rights violations in mining of rare earth minerals - such as cobalt, which is often found in conflict zones, but is needed for electric car batteries.

"But there are no formal decisions in this area," Stark added.

Mercedes is also scouting suppliers for innovations to see whether the German carmaker could make use of a more compact, lighter electric vehicle battery.

Stark noted that denser, cheaper batteries with shorter recharging times could also allow Mercedes to bring down the cost of electric cars closer to their equivalent combustion-engined variants.

"Overall volume and weight are as important as energy density," Stark said, referring to battery cells.

By bundling orders for components for conventional and electric vehicles with the same supplier, Mercedes-Benz hopes to help its supplier base manage the transition between electric and non-electric cars.

Separately, Stark said the replacement of Carlos Ghosn as Renault chairman will have no impact on an alliance between Renault and Mercedes.

"We have a relatively stable cooperation and supply agreement with Renault-Nissan. This supply relationship is stable and will remain unchanged," Stark said.

Renault on Thursday appointed Michelin boss Jean-Dominique Senard as its new chairman after Carlos Ghosn was forced to resign in the wake of a financial scandal that has rocked the French carmaker and its partner Nissan.

(Reporting by Edward Taylor; editing by Elaine Hardcastle and G Crosse)