Company-specific risks and opportunities

The following section describes company-specific risks and opportunities of the Daimler Group. A quantification of these risks and opportunities is shown in table B.65.

B.65 Company-specific risks and opportunities

Risk category Probability of occurrence Impact Opportunity category Impact
Production and technology risks Low High Production and technology opportunities Low
Information technology risks Low High Information technology opportunities
Personnel risks Medium Low Personnel opportunities
Risks related to associated companies,
joint ventures and joint operations

Low

Medium
Opportunities related to associated companies,
joint ventures and joint operations

Low

Production and technology risks and opportunities

Key success factors for achieving the desired level of prices for the products of the Daimler Group – and hence for the achievement of corporate targets – are brand image, design and quality, and thus the acceptance of products by customers, as well as technical features based on innovative research and development. Convincing solutions, which for example support accident-free driving or further improve the products’ fuel consumption and emissions, such as hybrid or electric vehicles, are of key importance for safe and sustainable mobility. Innovations and technology opportunities for the progressive and future-oriented design of the product range flow into the strategic product planning of the automotive divisions. However, due to increasing technical complexity, the continually rising extent of requirements in terms of emissions, fuel consumption and safety, as well as meeting and steadily raising the Daimler Group’s quality standards, product launches and manufacturing in the automotive divisions are also subject to production and technology risks.

In the context of product launches, the required parts and equipment components have to be available. To avoid restrictions in this context, the related processes are continually evaluated and improved. In order to secure and enhance the long-term future viability of production facilities, modernization, expansion, construction and restructuring measures are carried out as required. The execution of modernization activities and the launch of new products are generally connected with high investments. For example, stipulations, plant reconstruction or delays in the ramp-up phase of an innovation or during a product’s lifecycle can lead to inefficiencies in the production process and as a consequence to a short-term reduction in production volumes. In addition, the planned increase in battery production due to the increasing electrification of the vehicle fleet means that initial technical problems cannot be ruled out during the production of the various battery types. Those automotive segments are affected which are currently launching a new product or have planned a related production ramp-up. In this context, it is also necessary to consider dependencies on contractual and cooperation partners, as well as possible changes in regional conditions, which have to be included in the local decision-making process.

In principle, there is a danger that infrastructure problems, reduced plant availability or the failure of production equipment or production plants may cause internal bottlenecks that would consequently generate costs. With the parallel failure of several production plants, the resulting effects could accumulate. These risks mainly exist for the Mercedes-Benz Cars segment. The production equipment is continually maintained and modernized. As a precaution, spare parts are held available as well as, if required, redundant machines are purchased for the production plants that might be at risk.

Insufficient availability of vehicle components at the right time, capacity restrictions in the production of batteries, interruptions in the supply chain and possible interruptions in supply by energy providers can lead to bottlenecks, especially at the Mercedes-Benz Cars division. At the Daimler Trucks division, there are further risks due to high utilization of production capacity in connection with potential bottlenecks for components for heavy-duty trucks. As a result of the expansion of production in the Mercedes-Benz Vans segment, a temporary increase in the workforce and additional shifts in the production plants could become necessary. In order to avoid such bottleneck situations, importance is placed upon being able to compensate for capacity constraints through forward planning. In addition, supply chains and the availability and quality of products are continuously monitored within the context of managing the entire value chain. Supplier management is undertaken for the prevention of risks with the aim of safeguarding production by securing the quantitative and qualitative ability to deliver of the suppliers. Furthermore, by sourcing components from other plants, potential bottlenecks can be reduced and can lead to opportunities at the Daimler Trucks division due to rising demand for heavy commercial vehicles.

Warranty and goodwill cases could arise in the Daimler Group if the quality of the products does not meet the requirements, regulations are not fully complied with, or support cannot be provided in the required form in connection with product problems and product care. Quality problems with components in vehicles from external suppliers can require technical adjustments that can lead to considerable expenses. If such risks occurred possible claims are examined and, if necessary, the appropriate measures are initiated for the affected products. If the high technical quality standards of purchased components are not fulfilled, this can lead to Daimler asserting claims against the respective supplier.

The probability of occurrence and possible impact of production and technology risks are unchanged compared with the previous year across all segments.

Information technology risks and opportunities

The digitization strategy that is systematically pursued at Daimler offers new possibilities for enhancing customer benefits and enterprise value. However, it also includes risks from the increasing IT dependency of products and business and production processes. In addition, specific risks exist due to the use and availability of new technologies in connection with digitization, which amongst others can affect the products, their use, or business operations. In addition, risks from cybercrime and hacker attacks cannot be ruled out.

It is essential for the globally active group like Daimler that information is available and can be exchanged in an up-to-date, complete and correct form. Appropriately secured IT systems and a reliable IT infrastructure must be used to protect information. Risks must be identified and evaluated over the entire lifecycle of applications and IT systems, and managed in line with their criticality. Particular attention is paid to risks that could result in the interruption of business processes due to the failure of IT systems or which could cause the loss or corruption of data.

Due to growing requirements concerning the confidentiality, integrity and availability of data, Daimler has defined various preventive and corrective measures so that the related risks are minimized and possible damage is limited. These measures are continually adapted to changing circumstances. For example, the Group minimizes potential interruptions of operating processes in data centers by means of mirrored data sets, decentralized data storage, outsourced data backups and IT systems designed for high availability. Emergency plans are developed, employees are trained and sensitized, and further technical and organizational precautions are taken in order to maintain operating capability. Specific threats are analyzed and countermeasures are coordinated at a central cyber security center. The protection of products and services from danger caused by hacking and cybercrime is continually developed.

Despite all precautionary measures, disturbances in information processing and therefore negative impacts on the business processes and on IT-based services cannot be completely ruled out.

Due in particular to the changed risk situation relating to cybercrime and hacker attacks, the possible impact of information-technology risks has increased compared with the previous year from “Medium” to “High”.

Personnel risks and opportunities

The success of the Daimler Group is highly dependent on its employees and their expertise. They are involved in their respective activities and working processes with their ideas and suggestions, and thus make significant contributions to improvements and innovations every day.

Competition for highly qualified staff and management is still very intense in the industry and the regions in which Daimler operates. Future success also depends on the extent to which the Daimler Group succeeds over the long term in recruiting, integrating and retaining specialist employees. The established human resources instruments take such personnel risks into consideration, while contributing toward the recruitment and retention of staff with high potential and expertise as well as transparency with regard to the resources of the Daimler Group. One focus of human resources management is the targeted personnel development and further training of the workforce. Employees benefit for example from the range of courses offered by the Daimler Corporate Academy and from transparency in the context of performance management. In order to remain successful as a company, management culture and principles are being further developed in a Group-wide project.

Due to demographic developments, the Group has to cope with changes relating to an aging workforce and has to secure a sufficient number of qualified young persons with the potential to become the next generation of highly skilled specialists and executives. This issue is addressed by measures taken in the area of generation management, which are intended to counteract the effects of personnel bottlenecks by exerting an influence on entrepreneurial activity and consequently on the earnings of the Daimler Group.

Risks in the context of negotiations on collective bargaining frameworks and the associated potential loss of production are not to be expected to a large extent in Germany before 2020.

There is no segment-specific assessment of human-resources risks because the described risks are not primarily related to any specific business segment, but are valid for all segments in the respective regions. Overall, the probability of occurrence of personnel risks has increased compared to the previous year from “Low” to “Medium”. Their possible impact remains unchanged.

Risks and opportunities related to associated companies, joint ventures and joint operations

Cooperation with partners in associated companies, joint ventures and joint operations and other types of partnership is of key importance for Daimler. Along with ensuring better access to growth markets and new technologies, these shareholdings and partnerships help to utilize synergies and improve cost structures in order to successfully respond to the competitive situation in the automotive industry. Through investments in startups, Daimler promotes innovative approaches in many areas of the Group.

The Daimler Group generally participates in the risks and opportunities of associated companies, joint ventures and joint operations in line with its ownership interest.

The remeasurement of an associated company, joint venture or joint operation in relation to its carrying value can lead to risks and opportunities for the segment to which it is allocated. Furthermore, the business activities of an associated company, joint venture or joint operation, or the disposal or acquisition of an interest in such an entity, can result in financial obligations or an additional financing requirement, but can also result in potential opportunities, in connection with mobility services for example. Such risks are also generally connected with startups whose further development is not yet foreseeable. Risks from associated companies, joint ventures or joint operations exist in the Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans and Daimler Financial Services segments, as well as from the associated companies, joint ventures and joint operations directly allocated to the Group. All associated companies, joint ventures and joint operations are subject to a monitoring process so that, if required, decisions can be made on whether or not measures can be promptly taken to support or ensure their profitability. The recoverable value of investments is also regularly monitored.

Risks and opportunities related to associated companies, joint ventures and joint operations are unchanged compared with the previous year.

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