Company-specific risks and opportunities
The following section describes the company-specific risks and opportunities of the Daimler Group. A quantification of these risks and opportunities is shown in table B.72.
B.72 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||Medium||Personnel opportunities||–|
|Risks related to equity investments and cooperations||Low||Medium||Opportunities related to equity investments and cooperations||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. Technical solutions, 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 are integrated in the strategic product planning of the automotive segments. As a result of 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, production and technology risks exist for product launches and manufacturing in the automotive segments.
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 continuously 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, 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 temporary reduction in production volumes. Late design changes in the development process, for example in connection with new regulatory requirements, as well as quality or availability problems of supplied vehicle components can have a negative impact on production ramp-ups. Furthermore, the planned increase in battery production due to the increasing electrification of the vehicle fleet means that initial problems during the production of the various battery types and possible technical limitations on battery lifecycles cannot be ruled out. Affected are those automotive segments 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 reduced plant availability or the failure of production equipment or production plants may cause internal bottlenecks that would consequently generate costs. These risks mainly exist for Mercedes-Benz Cars & Vans. The production equipment is continuously maintained and modernized. As a precaution, spare parts are held available or, if required, redundant machines are purchased for the production plants that might be at risk.
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 Mercedes-Benz Cars & Vans. Restrictions on certain equipment components in new vehicle models and the lack of availability of vehicle parts at the right time also mean that vehicles cannot be handed over to customers as planned. 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 ensuring the quantity and quality of the components required to manufacture the vehicles. The lack of availability and quality problems with certain vehicle parts can lead to production downtimes and cause costs.
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 both with components in vehicles from external suppliers and in connection with technical innovations in vehicles may require adjustments that can lead to considerable expenses. Possible claims in connection with such risks 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 to the previous year across all segments.
Information technology risks and opportunities
The systematically pursued digitization strategy enables Daimler to utilize new opportunities to increase customer benefit and the value of the company. Nonetheless, the high penetration of information technology (IT) in all segments also brings risks for their business and production processes, as well as for their services and products.
The ever-growing threat from cybercrime and the spread of aggressive malicious code brings risks that can affect the availability, integrity and confidentiality of information and IT-supported operating resources. Despite extensive precautions, in the worst-case scenario, this can lead to a temporary interruption of IT-supported business processes with severe negative effects on the Group’s earnings. In addition, the loss or misuse of sensitive data may under certain circumstances lead to a loss of reputation. In particular, stricter regulatory requirements such as the EU Data Protection Directive may, among other things, give rise to claims by third parties and result in costly regulatory requirements and penalties with an impact on earnings.
It is essential for the globally active Daimler Group and its wide-ranging business and production processes that information is available and can be exchanged in an up-to-date, complete and correct form. The framework for IT security is based on international standards such as ISO/IEC 2700x and the NIST Cybersecurity Framework, and its protective measures also apply industry standards and best practice. Appropriately secure IT systems and a reliable IT infrastructure must be used to protect information. Cyber threats must be identified over the entire lifecycle of applications and IT systems, and dealt with in line with their seriousness. 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. The advancing digitization and connectivity of production equipment is accompanied by coordinated technical and organizational security measures.
Due to growing requirements concerning the confidentiality, integrity and availability of data, Daimler has implemented various preventive and corrective measures so that the related risks are minimized and possible damage is limited. For example, the Group reduces 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 and employees are trained and regularly sensitized in order to maintain operating capability. Specific threats are analyzed and countermeasures are coordinated at a globally active Cyber Intelligence & Response Center. The protection of products and services at the risk of by hacking and cybercrime is continually developed.
The possible impact and probability of occurrence of information-technology risks are unchanged compared to the previous year.
Personnel risks and opportunities
Competition for highly qualified staff and management is still very intense in the industry and the regions in which Daimler operates. The future success of the Daimler Group also depends on the extent to which it succeeds over the long term in recruiting, integrating and retaining specialist employees. The established human resources instruments take such personnel risks into consideration. One focus of human resources management is the targeted personnel development and further training of the workforce. Employees benefit for example from a 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 is addressed by measures taken in the area of generation management that do justice to the scope of the issue.
We counter economic, market and competitive fluctuations with the established time and flexibility instruments to enable us to react appropriately to the situation. In order to achieve the long-term reduction in personnel costs necessary for the transformation, Daimler’s management and the General Works Council have concluded an agreement which includes a staff-reduction program. As this is based on an agreement that is voluntary for both parties, there is a risk that its implementation may not be able to take place to the full extent planned.
Personnel risks have increased from “Low” to “Medium” due to the upcoming negotiations on collective bargaining conditions in the metal and electrical industries in Germany and the associated potential production losses. The probability of occurrence of personnel risks is currently assessed as unchanged compared with the previous year.
Risks and opportunities related to equity investments and cooperations
Cooperation with partners in associated companies and joint ventures is of key importance to Daimler. Along with ensuring better access to growth markets and new technologies, these shareholdings 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 and joint ventures in line with its equity interest, and is also subject to share-price risks and opportunities if such companies are listed on a stock exchange.
The remeasurement of an associated company or joint venture 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 also exist with investments in startups and in the context of the restructuring of companies in which a minority interest is held. Risks from associated companies and joint ventures exist at Mercedes-Benz Cars & Vans, Daimler Trucks & Buses and Daimler Mobility, as well as at the associated companies and joint ventures directly allocated to the Group.
The associated companies and joint ventures 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.
The overall assessment of risks and opportunities related to equity investments and cooperations is unchanged compared with the previous year.