Company-specific risks and opportunities

The following section deals with the company-specific risks and opportunities of the Daimler Group. A quantification of these risks and opportunities is shown in table B.56.

B.56

Company-specific risks and opportunities
Risk category Probability
of occurrence
Impact Opportunity category Impact
         
Production and technology risks Low High Production and technology opportunities
Information technology risks Low Medium Information technology opportunities
Personnel risks Medium High Personnel opportunities
Risks related to equity interests and joint ventures Low Medium Opportunities related to equity interests and joint ventures 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 the corporate goals, are the brand image, design and quality of the products — and thus their acceptance by customers — as well as technical features based on innovative research and development. Convincing solutions, which for example promote accident-free driving or further improve our vehicles’ fuel consumption and emissions (e.g. diesel-hybrid or electric vehicles), are of key importance for safe and sustainable mobility. Due to growing technical complexity, continually rising requirements in terms of emissions, fuel consumption and safety, and the Daimler Group’s goal of meeting and steadily raising its quality standards, product manufacturing in the various automotive divisions is subject to production and technology risks.

The demanding combination of requirements, complexity and quality can lead to higher advance expenditure and thus also to an adverse impact on the automotive segment’s profitability. One of the associated risks is that development expenditure cannot later flow directly into the end product if the solution is not ideally usable for the customer or proves not to be marketable.

In addition, the launch of new products is generally connected with high investment and can lead to a short-term decline in production volume during the initial production phase. In order to achieve a very high level of quality, which is one of the key factors for a customer’s decision to buy a product of the Daimler Group, it is necessary to make investments in new products and technologies that sometimes exceed the originally planned scope. This cost overrun would then reduce the anticipated earnings from the launch of a new model series or product generation. These automotive segments are affected, which are currently launching new products or that are planning to do so, in some cases in conformance with specific regional conditions.

In principle, there is also a danger that due to problems with or the failure of production equipment or a production plant, it might not be possible to maintain the planned level of production, and that would consequently generate costs. Such risks mainly exist for the Mercedes-Benz Cars division. As a precaution, spare parts are held available for the production plants that are at risk.

Product components also have to be available at the right time. Bottlenecks could also be caused by interruptions in the supply chain. In order to avoid bottleneck situations, priority is given to the regular maintenance of production equipment and to avoid capacity bottlenecks by means of foresighted planning. In addition, supply chains and the availability and quality of products are continuously monitored within the context of managing the entire value chain. Risks in this area are to be avoided through the continuous modernization of production equipment and facilities.

Warranty and goodwill claims can arise when the quality of the products does not meet customers’ expectations, when a regulation is not fully complied with, or when support is not provided in the required form in connection with product problems and product care. The Daimler Group works continually and intensively to maintain product quality at a very high level, even given the growing product complexity, in order to avoid the danger of making corrections to end products and to supply customers with the best possible products. Furthermore, processes are implemented at the Daimler Group to regularly obtain customers’ opinions on the support provided so that our service and customer satisfaction can be continuously improved.

Production and technology risks continue to have a low probability of occurrence due to preventive measures. However, because of the continually high number of new product launches, the potential impact of such risks remains on the same level.

Innovations and technology opportunities from the advanced and future-oriented design of our product range are incorporated into the strategic product planning of the automotive divisions. Within the framework of a continuous process, it is constantly reviewed whether the production level can be increased by means of shift models, the worldwide production network, investment projects or more flexible production equipment. The opportunities reported on in the previous year and the measures planned in that context for the optimization of production capacities have been realized and continue to have a positive effect in the area of production.

Information technology risks and opportunities. Information technology plays a crucial role for the Daimler Group’s business processes. Storing and exchanging data in a timely, complete and correct manner is of key importance for a global group such as Daimler. Appropriately secure IT systems and a reliable IT infrastructure must be used in order to protect information. 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 are therefore identified and evaluated over the entire lifecycles of applications and IT systems. Daimler has defined suitable measures for risk avoidance and limitation of damage. These measures are continually adapted to changing circumstances. For example, the Group minimizes potential interruptions of operating routines in the data centers by means of mirrored data sets, decentralized data storage, outsourced archiving, high-availability computers and appropriate emergency plans. An IT security operations center coordinates potential danger from cybercrime and hacker attacks. Daimler utilizes various preventive and corrective measures in order to meet the growing demands placed on the confidentiality, integrity and availability of data. Despite all the precautionary measures taken, Daimler cannot completely rule out the possibility that IT disturbances will arise and have a negative impact on the Group’s business processes. The impact and probability of occurrence of IT risks remain unchanged compared to the prior year.

Personnel risks and opportunities. Daimler’s success is highly dependent on employees and their expertise. With their ideas and suggestions, they are involved in their respective activities and working processes and thus contribute considerably every day to improvements and innovations.

To support this process, the Daimler Group has established an ideas management system through which employees can submit ideas and suggestions for improvements. The processing of the information received by this system and the integration of ideas in an assessment process carried out by experts and persons in charge of the respective processes is supported by the established IT system “idee.com.” This is intended to ensure the systematic and sustained promotion of employees’ ideas and suggestions for improvement.

Furthermore, work groups create processes and instruments to produce new business ideas and to establish interdepartmental cooperation. In this context, an online community exists in the area of business innovation to which suggestions for discussions can be submitted, which all employees can assess and develop further.

Competition for highly qualified staff and management is still very intense in the industry and the regions in which we operate. The future success of the Daimler Group also depends on the magnitude to which we succeed over the long term in recruiting, integrating and retaining executives, engineers and other specialists. The human resources instruments take such personnel risks into consideration, while contributing toward the recruitment and retention of staff with high potential and expertise and ensuring 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 the transparency created by LEAD, the uniform worldwide performance and potential management system. Because of 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. We address this issue by taking appropriate measures in the area of generation management. There is no segment-specific assessment of the human resources risk because the described risks are not related to any specific business segment but are valid for all segments. If this risk materializes, depending on the size of the personnel shortage, an impact on the Group’s activities and thus also on the earnings of the Daimler Group is to be expected. Due to upcoming collective bargaining negotiations, the category of personnel risks displays a higher possible impact and probability of occurrence as compared to the prior year.

Risks and opportunities related to equity interests and joint ventures. Cooperation with partners in associated companies, joint ventures, joint operations and other types of partnerships is of central importance for Daimler. Along with ensuring better access to growth markets and new technologies, equity interests and joint ventures help us exploit synergies and improve cost structures and thus enable us to successfully respond to competitive pressures in the automotive industry.

Daimler generally bears a proportionate share of the risks and opportunities of its equity interests. The possible risks include negative financial developments and delays in the set-up of development and production structures in equity interests and joint ventures, all of which can negatively impact the achievement of growth targets in the affected segments. Risks exist in connection with equity interests in the segments Mercedes-Benz Cars, Daimler Trucks and Mercedes-Benz Vans. The cases involved are subject to a continuous monitoring process so that an equity interest can be promptly supported if required and its profitability can be ensured. The recoverable value of investments is also continually monitored.

The development of production capacities and the acquisition of equity interests in the Chinese market are particularly exposed to risks due to the uncertain nature of market development in China. Efficient production processes are established to deal with and reduce quality risks in the Chinese market. Furthermore, dependencies between contracting parties and possible changes to political and legal conditions in China must be included in the local decision-making processes. In view of the tense situation in Russia and Ukraine, the Group is also paying closer attention to affected equity interests and joint ventures in those countries.

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