Working Smart in China

This is the age of smart phones, smart homes, smart factories and, theoretically, the smart car. Except it really isn’t. The diminutive city car that seemed like a smart idea more than 20 years ago has never broken into the big time, and has been a loss-maker for owner Daimler for most of its existence.

I spoke to Head of Smart Katrin Adt and her Head of Sales & Marketing Daniel Lescow just prior to the announcement of Daimler’s 50:50 joint venture with Chinese car maker Geely Holding – a deal that aims to reinvent Smart as a B-segment subcompact premium electric vehicle and build it smack-bang in the middle of China’s burgeoning EV market starting in 2022.

“I do believe that this is the moment [for Smart],” says Adt. “Smart was conceived as electric right from the beginning. And now, 20 years later, we’re coming back to that original idea.”

One might argue that Smart was and is ahead of its time. Smart certainly does. However, its sales figures over its lifespan would indicate that being first is not necessarily good for the bottom line. “The numbers are what they are,” says Lescow. “We believe that now is the time to really leverage the ‘being first’ movement into a new business model of a future generation.”

92-percent brand recognition in China

Lescow, who previously headed up Smart in China, is convinced by the potential for the Smart brand there. “[Smart in China] is positioned as a lifestyle brand much more than in Europe. It’s much younger.” Lescow claims Smart has a remarkable 92 percent brand recognition in China, despite sales of around just 20,000 units in 2018. “We have done a pretty good job of positioning ourselves in a very premium niche market,” he says, adding, “Although [premium] two-seaters are probably not the first thing [Chinese customers] think of.”

While there is a strong market in China for two-seat electric vehicles, it is far removed from the premium world occupied by the Smart Fortwo. Chinese two-seaters are cheap, underpowered runarounds built by local brands. By moving upwards into the four-seater B-segment (Volkswagen Polo / Ford Fiesta) with the JV model, Smart will distance itself from that sector while retaining the premium appeal of German design.

Under the terms of the joint venture, Daimler will take on responsibility for styling, with Geely (who also owns Volvo, Lotus and Polestar) handling the technical underpinnings at its global engineering centres – which include a facility in Gothenburg (Sweden). What this means, in effect, is retaining the external look-and-feel of the Smart brand, while engineering it again from scratch to make financial sense, and positioning it in a market niche where it might actually sell. Since the two-seater Smart first laid claim to the micro-car segment in 1997, its cumulative global sales have barely topped two million.

Resolutely European

Despite upward sales blips when it first launched in the US (in 2008) and in China (in 2009), Smart has remained resolutely a European brand, with Germany accounting for more than 40 percent of its sales in 2018. While work gets underway on the new, larger Smart, Adt and Lescow are focusing their efforts on consolidating the brand’s position in its core markets, where it is currently transitioning to being a one-hundred-percent electric brand (it will build its last ICE-powered Smart in June this year) and is “overrun with demand at the moment”. Adt says: “We have doubled our sales [of electric vehicles] from 2017 to 2018 … and had a market share of 19 percent in Germany, among all electric cars.” In fact, Lescow says that it is supply issues relating mainly to batteries and electric motors that are inhibiting sales of electric Smarts in Europe right now. Once these are resolved, he anticipates high growth rates for this year and next on the back of a facelift of the current (last) generation due in 2020.

Adt says that all options are on the table when it comes to the new generation. “We’re thinking of this in a revolutionary or disruptive way,” she says. “It is not set that we will stick to a one-product strategy.” Nevertheless, she admits that one option teetering closer to the edge of the table than others is the US market, where sales last year numbered less than 1,300 units. “The Smart brand is not going to be a major player [in the US] in the immediate future with the [electric range] limits that we have.”

One key aspect shaping the Smart strategy that will likely carry over into the JV with Geely is the development of its digital services portfolio under the “ready to” sub-brand. Launched last year in four markets (Germany, Spain, France and Italy), it will roll out to a total of ten European markets by early 2020. Lescow says that one of the most popular among those is the “ready to share” micro-sharing service, whereby users can share their Smart with a closed group of friends on their own, flexible terms. “And it’s not something we just deliver and leave you alone with,” says Lescow. A campaign in Germany provides owners with advertising materials and assistance in promoting their micro-sharing venture on social media.

It’s a Smart USP to connect product with services.

Katrin Adt, Head of Smart

A recent article in The Economist suggests sharing and ride-hailing services will play an important role in placing China at the forefront of future mobility models. “It’s a Smart USP to connect product with services in a full package,” says Adt, “What can the car do differently than standing around 23 hours a day? … Our purpose is to ease urban life. And that’s what we mean.”

Adt and Lescow face an interesting task in managing the end-of-life phase of the Smart in its original, two-seater form before it re-emerges from its Chinese-made cocoon in 2022. Its traditional European sales base could well enjoy a last-minute volume boost fired by EV incentives in many markets as well as the collectability of a quirky, likable car as it reaches the end of an era. As far as China is concerned, Lescow insists: “The ground is well prepared, but the big step forward is yet to come.”

Unless otherwise stated, all images provided by the author.