Mercedes-Benz, owned by Daimler AG (NYSE:DAI), is investing heavily in Hungary to build and manufacture compact cars. The automaker already has a production plant in the country in the city of Kecskemet which became functional in March this year.  The expanded production will also help the automaker meet growing demand for cars as sales rose 4% in May after declining by 3.6% in April. 
We currently have a price estimate of $72 for Daimler’s stock, which is well above its market price.
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- How Has Daimler’s Revenue And Gross Profit Composition Changed Over 2012-2016E?
Hungary in Demand
Besides Daimler, Audi, owned by Volkswagen AG, has been manufacturing cars in Hungary since 1994. Audi is also spending 900 million Euros to expand production of its plant in Gyor, Hungary which will scale up the capacity to 125,000 cars from 2013.  Even BMW AG is also looking at options in Hungary along with Slovakia as possible production sites. .
Hungary is emerging as a low-cost hub for auto giants. The automakers enjoy lower taxation in Hungary than their homeland Germany. Moreover, the labor costs are almost a fifth of what they are in Germany. In fact, according to one research, the cost of manufacturing a Mercedes-Benz B-class in Hungary is $2500 lower than what it is in Germany.  Mercedes-Benz cars and vans contribute almost 45% to Daimler’s stock price as per our estimates.
May Sales Rise
For the month of May, Mercedes-Benz sold 113,136 cars or an increase of 4% on a y-o-y basis. Year-to-date, Mercedes-Benz has sold 8.4% more cars than it did in the corresponding time frame in the previous year. The automaker has lost market share to BMW and Volkswagen’s Audi in recent times as they reported a growth of 9.3% and 12% respectively in the number of vehicles sold globally in 2012 so far. Audi overtook Mercedes-Benz as the world’s second largest luxury-car maker last year. Notes:
- Daimler gears up in Hungary, cnn.com, June 7, 2012 [↩] [↩]
- Mercedes-Benz vehicle sales growth picks up in May, reuters.com, June 5, 2012 [↩]
- Audi Unprecedented Plant Expansion Tests Quality Standards: Cars, bloomberg.com, June 8,2012 [↩]
- BMW Eyes Sites In Hungary, Slovakia For Production, foxbusiness.com, May 18, 2012 [↩]
- China Luxury Boom Fuels Record Sales for BMW, Audi, wsj.com, June 11, 2012 [↩]