BAIC takes a stake in Daimler

23 July 2019

China’s BAIC has bought a 5% stake in German carmaker Daimler, cementing a long-standing relationship following rival Geely’s investment last year.

BAIC was Daimler’s main partner in China until 2018, when Geely chairman Li Shufu took a 9.69% stake in the manufacturer, becoming its largest shareholder. The new investment is also an attempt to secure BAIC’s place in Chinese Mercedes-Benz manufacturing company Beijing Benz Automotive.

Daimler and BAIC are linked in a long-standing strategic partnership that has existed since 2003. Since then, the two companies have cooperated in the production, research and development, and sale of passenger cars, vans and trucks. In 2013, Daimler acquired an equity interest in BAIC Motor, a listed subsidiary of BAIC, and currently holds 9.55% of its shares.

Daimler AG welcomes its cooperation partner Beijing Automotive Group Co. Ltd. (BAIC Group) as a new investor. ′We are very pleased that our long-standing partner BAIC is now a long-term investor in Daimler,’ said Daimler chairman Ola Källenius. ′This step reinforces our successful partnership and is a signal of trust in the strategy and future potential of our company. The Chinese market is and remains a crucial pillar of our success – not only for sales but also for our product development and production.’

While no financial details were released, in May, when the move was first rumoured, a 5% stake in Daimler would have cost BAIC around €3 billion, with Daimler’s closing market value at the time at €57.6 billion.

Geely aspirations

The high cost of electric vehicle batteries has made it hard for carmakers to build affordable zero-emissions vehicles, leading several of them to strike alliances with Chinese partners

Despite being a long-term partner of the German manufacturer, BAIC had no opportunity to react to Shufu’s investment, as the Geely chairman kept his plan concealed, using Hong Kong shell companies, derivatives, bank financing and structured share options.

The move by Shufu was intended to help Geely develop its electric and hydrogen vehicle technology with help from Daimler, which recently started production of its first electric vehicle, the EQC.

In March, Daimler agreed to build its next generation of Smart branded vehicles with Geely, as the Chinese company, which also owns Volvo and LEVC, took a 50% stake in the marque. The German manufacturer, which also owns Mercedes-Benz, had been considering its options over the city-car brand.

Geely has not commented on the BAIC investment.

Troubling times

The news will come as a welcome respite to Daimler, following its latest profit warning over its Q2 and yearly financial figures.

The company expects a drop of €1.6 billion before interest and taxes in Q2, blaming the need to provide an extended recall in connection with issues surrounding Takata airbags, which itself will cost €1 billion. In the same period last year, the carmaker made a €2.6 billion profit.

In June, Daimler cut its profit forecast for the third time in a year.