Announces further R3bn investment as production starts in East London.

By Roy Cokayne

The move has brought welcome new jobs to the Eastern Cape. Image: Supplied The move has brought welcome new jobs to the Eastern Cape. Image: Supplied

Mercedes-Benz Cars has invested a further R3 billion in South Africa to boost its investment in the country to R13 billion for the production of the new generation C-Class at its production plant in East London.

Jörg Burzer, the member of the board of Mercedes-Benz Cars responsible for production and supply chain management, announced the investment on Thursday at an event at Mercedes-Benz South Africa’s plant in East London to celebrate the commencement of production of the new C-Class.

The company announced the initial R10 billion investment in South Africa at the Presidential Investment Summit in 2018.

Burzer said South Africa is an important location in the global Mercedes-Benz production network and the new C-Class is only being built in two other plants, Bremen in Germany and Beijing in China.

“With our additional investment of R3 billion in the East London plant, we underline our commitment to contributing to the South African economy and the Eastern Cape region,” he said.

Jörg Burzer, member of the board of Mercedes-Benz Cars. Image: Supplied

Burzer said Mercedes-Benz has 4 000 employees in East London and an additional about 600 new jobs have been created by the investment.

The investment has also secured or created 2 000 jobs in Mercedes-Benz’s supply base in South Africa.

“This underlines how important the investment is that we have made in East London,” he said.

Minister of Trade, Industry and Competition Ebrahim Patel said the launch of the new C-Class positions Buffalo City and the rest of Eastern Cape to continue its legacy of advanced manufacturing.

“Through the South African Automotive Masterplan, and the Automotive Production and Development Programme, we have created a platform for investment in the industry, deepening our technological expertise, creating local value chains and securing jobs,” he said.

FDI

The Automotive Industry Export Council (AIEC) said last month the automotive sector remains one of the most visible sectors receiving foreign direct investments, with the seven original equipment manufacturers (OEMs) investing a record R9.2 billion in 2020 while the component sector invested R2.4 billion in 2020.

Patel added that the outlay of the first R10 billion investment showed Mercedes-Benz that they could get greater levels of flexibility in production in the East London plant with further enhancements.

“They are doing about 200 variants of the standard C-Class model, which is quite extraordinary for a plant of its size,” said Patel.

He added that the investment by Mercedes-Benz is very significant for East London because of Mercedes-Benz’s job creation projections.

“My office has calculated that the total salaries and wages in the economy as a result of the Mercedes-Benz ecosystem will be about R2.5 billion, of which R750 million annually would be as a result of the additional jobs.

“Mercedes-Benz is the biggest industrial private sector employer in Buffalo City and the eastern part of the Eastern Cape has historically faced deindustrialisation pressures.

“So the effect is to provide stability for the existing jobs. In addition to that are the new jobs,” he said.

Record investments

The automotive sector remains one of the most visible sectors receiving foreign direct investments, according to the AIEC.

It said that in 2020 the seven OEMs invested a record R9.2 billion while the component sector invested R2.4 billion.

Mercedes-Benz South Africa CEO and executive director of manufacturing Andreas Engling said the previous C-Class was exported from South Africa to 80 countries but the export destinations for the new model will increase to about 110 countries around the world.

Mercedes-Benz SA CEO Andreas Engling. Image: Supplied

The investment was used to modernise the East London plant, which has been designed for higher capacities and features more than 500 digitally enabled robots.

A new body shop has been built at the East London Industrial Development Zone, where vehicle parts for the New Generation C-Class are manufactured, to allow the East London Plant to increase volume outputs, optimise the assembly line and achieve commercial synergies.

Burzer declined to comment on the production capacity of the East London plant or the volume of C-Class units exported because this is competitively sensitive information.

However, Engling said about 650 000 units of the previous generation C-Class were produced in East London during the seven-year lifecycle of this model.

“This underlines how important this location is for production work and also for export to the United States of the C-Class sedan,” Burzer added.

The AIEC last month highlighted the importance of the automotive industry to South Africa’s economy despite the contribution of the broader automotive industry to GDP declining from 6.4% in 2019 to 4.9% in 2020 because of Covid-19.

It said the total value of automotive exports declined last year because of the impact of the Covid-19 lockdowns by 12.9% to R175.7 billion from the record R201.7 billion in 2019  – but still accounted for 13.9% of total South African exports.

Production

Engling said the East London plant ramped down from production of the older C-Class model four weeks ago and production of the new model commenced on June 24.

He said Mercedes-Benz SA experienced a huge Covid-19-related dip in production last year but “came back nicely in the first quarter of 2021”.

He said the plant will be increasing its production volumes until the end of this year, starting on a two-shift system from June 24 and the plant moving back to a three-shift system by mid-October.

Localisation

Engling said local content in the new C-Class will increase from the 35-40% in the older C-Class model because the South African Automotive Masterplan envisages localisation of about 60%.

“That is not really an easy [task]. It takes time but we are increasing localisation now for the new model.

“The IDZ property is now occupied 70-80% by suppliers, which shows we are 100% committed to the Automotive Masterplan,” he said.

Engling said Mercedes-Benz SA also has a “late localisation” project, which involves getting more parts localised during the lifecycle of the model.

Hybrids and EVs

With its Ambition 2039 plan, Mercedes-Benz is striving for a fully networked and completely CO₂-neutral vehicle fleet in less than 20 years and aiming to have plug-in hybrids or all-electric vehicles make up more than 50% of its sales by 2030.

Burzer said Mercedes-Benz maintains extremely high flexibility in terms of powertrain technology in each and every plant to ensure it can produce various conventional and new powertrain technologies on the same line.

He said Mercedes-Benz wants to be flexible because it does not know how electric or hybrid vehicles will ramp up in South Africa, especially in a location that is exporting heavily into different markets.

However, Burzer said a hybrid variant will be introduced later this year in South Africa.

Engling added that if the demand for hybrid variants increases, the plant will be able to produce 100% hybrids on the line.

“We have one line but that is a full flex line and on this line we can produce every single variant and model,” he said.

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