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Class Editori News

Baic buys 5% of Daimler to strengthen the electric segment

July 24, 2019

Abstract : The Stuttgart-based company is a shareholder owning almost 10% of the Chinese car manufacturer, whose models with electric motors are currently the best sellers in China. Thus, Baic is also opening a window on the European market, which is at the forefront in the component segment.

MILAN, Jul 23 (Class Editori) - Anticipated by market rumors in mid-May, Ola Källenius, new CEO of Daimler, announced today that Beijing Automotive Group (Baic) has decided to invest directly in Daimler, to strengthen the strategic partnership between the two automobile companies.

The Chinese group has specified in a note that is in possession of 5% of the capital of the German giant, of which 2.48% by way of direct participation and rights on another 2.52%. After the news, the Daimler title earned 4.65% on the Frankfurt Stock Exchange. According to market sources, Baic's investment would be around 3 billion euros.

The transaction strengthens the alliance between the two luxury brands as since 2013 Daimler, the producer of Mercedes and heavy commercial vehicles, has been present in the capital of Baic Motor with 9.5%, a subsidiary of Baic, and is represented by a member of the Chinese company's board of directors.

"Baic and Daimler have been cooperating successfully for more than a decade and our partnership is based on trust and mutual benefit," said Beijing Automotive Group president Heyi Xu, emphasizing how "the goal of the company is to strengthen the alliance with this investment."

The two companies have been collaborating since 2005, and have established several joint ventures for the production of cars and trucks. The various joint ventures between the two groups sold over 485,000 passenger vehicles on the Chinese market in 2018, manufactured in China, while the vehicles sold in the first half of 2019 were 282,000, a large number considering that the automotive market in China this year recorded a contraction of more than 10%.

Baic and Daimler also control the largest research center of the German group outside of Germany, in Beijing. "We want ours to be a model of collaboration between China and Germany," added Heyi Xu.

Daimler and Baic are shareholders of Beijing Benz Automotive, 51% controlled by Baic and 49% by Daimler. Daimler has just appointed Ola Kaellenius as the new chief executive officer, replacing Dieter Zetsche, who has led the group for over a decade. In the first quarter of this year Daimler recorded operating profits down by 16%, sales of Mercedes cars down 4% and margins down 6.1%, in addition to a 3% contraction of deliveries in China, which has been the leading market for Mercedes in the world for some years.

During the quarter, revenues amounted to 39.7 billion euros, remaining stable compared to 2018, with an ebit of 2.8 billion euros and 774 thousand vehicles sold, of which 555 thousand cars, with a decrease of 4%. Revenues for the Automobiles segment outlines an even more marked drop in the Ebit (-37%), while turnover was 21.2 billion, (-8%). As for heavy and light trucks, an increase in sales and turnover is underway, but profitability is slightly dropping.

Baic is the second Chinese car maker that invested in the Stuttgart giant, characterized by a very fragmented capital structure. The main single shareholder, with 9.7%, is in fact the Tenaciou3 Prospect Investment Limited fund, behind which there is Li Shifu, the billionaire patron of the car manufacturer Geely in China and of Volvo in Europe.

Behind Li Shifu, the second largest single shareholder of the Baden Wuerttemberg car maker, world-famous for the production of Mercedes luxury sedans, is the Kuwait government fund with 6.8%.

In the context of a prolonged weakness of the traditional automotive market, which however sees a boom in the electricity sector, Baic's strategy is to strengthen ties, and control, over its partner, given that in March Daimler announced that it will build the new generation of Smart in China, in collaboration with Geely.

On the other hand, last year Daimler acquired a 3% stake in NBAIC BluePark New Energy Technology Co. Ltd., which produces electric vehicles in China.

Kallenius, the new CEO, is preparing a plan in which he should announce a strong cost reduction in order to find the resources to adequately face the challenge concerning the electric car.

In China, on the electricity market the competition is very heated. BMW, which sells 37% of its production in China, announced in recent months strong investments in the three research centers, in Beijing, Shenyang and Shanghai, with hundreds of technicians at the forefront in experimenting with new technologies, with autonomous driving, in Level 2 test phase as early as 2014 on the streets of Shanghai, to electric vehicles.

The Shanghai research center is particularly focused on digital services and the connectivity of the cars of the future, while the Designworks team of the same center works on the models of the future. The research in Shenyang is instead focused on high-voltage batteries, while the 200 technicians from Beijing work on the tests and their validation.

Tesla is working in Shanghai in the development of a huge production center for its cars that this year are imported to China. BYD, a Shenzhen-based full-electric and hybrid car manufacturer, is multiplying its efforts to successfully increase market shares.

(Source: Class Editori)

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Keyword: automobile Baic Daimler


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