Daimler AG (DAIGn.DE) has opened a research and development (R&D) centre in Beijing tasked with further tuning its Mercedes-Benz brand to wealthy Chinese tastes and closing the sales gap with Audi AG (NSUG.DE) and BMW AG (BMWG.DE).

The German auto maker's move demonstrates a desire to "embed us more deeply in China, to make cars best suited to China," Hubertus Troska, Daimler's China head, told Reuters.

Daimler is expanding its Mercedes-Benz brand in China at a time when an investigation into anti-competitive practices in the auto industry is prompting car makers to lower prices. Mercedes-Benz itself has previously said it was co-operating with an investigation into unspecified matters.

The new R&D centre nevertheless signals commitment to a market Troska said would become Mercedes-Benz's largest in as early as one or two years. With that in mind, the automaker plans to raise the number of Mercedes-Benz engineers and other specialists in Beijing to 500 by the end of next year from 350.

"It is a logical step to better understand the market and make sure Chinese requirements are properly regarded early in the process when we develop a next generation of cars," Troska said in an interview last week.

The R&D centre caps a series of moves Troska has made since becoming China head in 2012, including reforming marketing and sales and raising dealer numbers. Its focus on Chinese tastes should help Mercedes-Benz catch up in the local luxury car segment with Volkswagen AG's (VOWG_p.DE) Audi and BMW, he said.

Researcher LMC Automotive projects Mercedes-Benz to sell 291,000 vehicles in China this year, compared with 581,000 for luxury market-leader Audi and 448,000 for second-placed BMW.

Troska said new models such as the GLA compact SUV should help Mercedes-Benz sell "significantly more than 300,000 units next year." LMC Automotive puts Mercedes-Benz's 2015 sales at 386,000 vehicles.

YOUNGER DRIVERS

Daimler has invested about 110 million euros ($138.30 million) over recent months in the new R&D centre and in another centre it recently opened in Beijing with local partner BAIC Motor Corp (IPO-BAC.SS).

Such investments are more than appropriate, Troska said, given the "growth potential in China is unique."

Automobile sales growth in China has slowed in recent months in tandem with a slowdown in the overall economy. But automakers estimate overall annual demand will be as many as 35 million vehicles by 2020, from 22 million vehicles last year.

Among the R&D centre's more immediate tasks is better tuning Mercedes-Benz in with its Chinese customer base. The average age of the brand's customers in China is 38 compared with Germany where the age is about 20 years older, a company spokesman said.

High on the wish list of these younger buyers is in-car Internet access, Troska said.

Other features popular with wealthy Chinese include spacious back seats, advanced entertainment systems and climate control, because many customers have chauffeurs and drive themselves only at weekends.

Also as part of the China focus, Troska said Mercedes-Benz is considering a new super premium car built particularly with the Chinese consumer in mind.

"The (flagship) S-class is uniquely positioned and has a tradition also in China as being a top-of-the-line boss' car. Is there an opportunity to position even the S-class slightly higher? I think there is," Troska said.

"You will very soon hear about it," he added, declining to elaborate.

Daimler has also moved Mercedes-Benz's Beijing design studio to within the new R&D centre and expanded it with staff from a studio the automaker closed near Tokyo - reflecting a general industry shift towards making more design decisions in China.

Roughly 40 designers will work on the shapes of cars destined for market in 10 to 15 years' time under the studio's new design chief Hubert Lee, formerly head of Mercedes-Benz's Advanced Design Studio in Carlsbad, California.

"It's highly likely a vehicle concept might originate out of this studio in the near future, which may be sold in other markets around the world," Troska said.

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