The German automakers' battle to dominate China's luxury market is about to spread to a new product segment: small cars and crossovers.
Mercedes-Benz and Audi have chosen the Shanghai auto show for the world debut of two models: a small hatchback dubbed the Mercedes Concept A-Class and the Audi Q3 crossover.
The four-seat Concept A-Class, which is positioned as a sporty rival to the BMW 1-series and Audi A3, is powered by a turbocharged, direct-injection 2.0-liter gasoline engine that generates 210 hp.
The front-wheel-drive car's four-cylinder engine is mated to a dual-clutch transmission.
Other features include a radar-based collision warning system and adaptive brake assist, which minimizes the odds of rear-end collisions.
The Concept A-Class, which goes on sale next year, would seem to pose some risks for Mercedes in a market like China.
Wealthy Chinese car owners prefer to be chauffeured, so the German luxury brands have successfully introduced "stretch" sedans with roomier rear seats. Last July, Mercedes introduced its E300L, a long-wheelbase E-class model that is selling well.
By contrast, Daimler's Smart cars have been modest sellers in China. To give Smart a boost, Mercedes rolled out a new Chinese ad campaign featuring NBA basketball star Kobe Bryant.
The campaign appears to be working; Smart sales in China rose sixfold in March. The turnaround suggests there may be a profitable urban market in China for small luxury cars.
The Concept A-Class probably won't be sold in the United States.
Audi, China's best-selling luxury brand, is entering China's red-hot SUV segment with the Q3 crossover. As yet, Audi hasn't offered details about the car.
According to enthusiast magazines, the Q3 will be powered by a range of turbocharged four-cylinder engines generating up to 200 hp. The Q3 will allow Audi to compete against rivals such as the BMW X1.
While Mercedes and Audi highlight new models in the small-car segment, BMW is exploring China's appetite for EVs.
At the Shanghai show, BMW will unveil a plug-in hybrid concept derived from its stretch 5-series sedan. According to BMW, the car can travel up to 46 miles on batteries alone. The turbocharged gasoline engine and electric motor together generate 230 kilowatts of power.
The concept's debut in Shanghai will give BMW an opportunity to highlight its other EV programs. In 2011, the company launched a fleet of electric-powered Minis in Beijing and Shenzhen.
Later this year, BMW also will begin road tests of the ActiveE, an electric version of its 1-series coupe.
For more traditional BMW enthusiasts, the German automaker has scheduled the global launch of its Concept M5.
The M5 is powered by a twin-turbocharged 4.4-liter V-8 engine mated to a seven-speed double-clutch transmission. According to AutoWeek, a sister publication of Automotive News, the powertrain should generate 560 hp.
The M5 will go on sale in North America in 2012.
BMW also plans a Shanghai debut for its 650i coupe. The two-plus-two coupe is powered by a 4.4-liter, eight-cylinder engine that generates 407 hp.
A six-cylinder, 320-hp engine also will be available in the 640i coupe. Both engines will be mated to a standard eight-speed automatic transmission.
To improve seating comfort, BMW lengthened the coupe by 3 inches.
Each of the German luxury brands is counting on China to generate much of its growth over the next five to 10 years.
In 2010, Mercedes sold 147,700 vehicles in China, a 115 percent increase. BMW sales soared 87 percent to 183,300 units. And Audi sold 227,900 cars and SUVs, a 43 percent gain.
Each has plans to expand production in China, and each is stoking demand by offering Chinese consumers a first look at some of its best products.