surprise partner Geely and Daimler: A dangerous liaison

The Chinese investment in the maker of Mercedes-Benz cars could be the beginning of a doomed marriage where Geely has the upper hand. Anyone who doles out €7 billion isn't just there to “cooperate.”
Looks like a snake, acts like a snake ...

As if following a script, Geely boss Li Shufu embarked on a diplomatic tour of Stuttgart and Berlin earlier this week to explain why the Chinese carmaker had just bought a 9.7 percent stake in Daimler. After the bombshell was dropped exactly one week ago, Dieter Zetsche, head of the Stuttgart manufacturer, and German politicians couldn’t just ignore Mr. Li. The investment has forced the Mercedes-Benz maker into an uncomfortable relationship with Geely.

Mr. Li has now returned to China, leaving behind baffled politicians and duped car executives. The self-made billionaire met with Mr. Zetsche, as well as Daimler CFO Bodo Uebber and a representative from Angela Merkel’s office, but the investment is still shrouded in mystery. It's not clear what the Chinese investor, owner of Swedish competitor Volvo, actually wants. There is vague talk of a technological partnership with Germany's biggest maker of trucks and luxury cars.

Daimler’s top management has remained mum. Only Hubertus Troska, the board member in charge of China operations, was willing to comment earlier this week, repeating Daimler’s terse press release: “We see this as a positive.” And in Berlin, the government can think of nothing better to do than to consider tightening reporting requirements for stock market deals.

Does the new Daimler shareholder just want to do a little technological cuddling? No one believes that.

We should, however, remember clearly what and who this is all about. A foreign investor has sneaked up to one of the most prestigious German industrial groups while avoiding disclosure obligations, which is apparently quite legal. Overnight, it has become Daimler’s single, biggest investor. Mr. Li insists that he has no unfriendly intentions, that Geely will respect Daimler's corporate governance (whatever that may be) and that it will not even claim a seat on the non-executive supervisory board. And nobody finds this interesting or at least unusual?

Sorry, folks. Anyone who invests €7.3 billion ($9 billion) isn't just there to hold hands.

Does the new Daimler shareholder just want to do a little technological cuddling? No one believes that. We know that because we now have a pretty good idea about what the managers from the Far East are like. They're all about hard-core business interests. Mr. Li sees Daimler as an industrial partner with a very big name, although the Germans don’t view Geely as a partner. Daimler didn’t return Geely's advances when it first attempted to flirt in November, saying the Chinese carmaker could always buy shares on the market. The Chinese billionaire took it literally and underpinned his advances with a very large stake in Daimler. This isn't what friendship on an equal footing and mutual understanding looks like.

To avoid any misunderstandings: Despite great skepticism in Germany years ago, Chinese investors have demonstrated that they are not pursuing the strategy Germans had feared, namely buying up companies, relocating them and shutting them down. On the contrary, even hard-boiled trade unionists have to concede that they often get along very well with the new owners, despite initial hiccups. The mentalities are simply too different to guarantee smooth sailing from the start. But the Chinese learn quickly, and not just in terms of technology.

26 P05 Geely - Daimlers new top shareholder-01

Daimler officials, however, must be wondering what this investor is up to, how Mr. Li intends to assert his interests and what’s in it for the world’s largest maker of luxury cars and trucks. Daimler’s other shareholders, representing 90 percent of its capital, should ask themselves whether entering into any cooperation with Geely is in the interest of the company they are funding. Why does “technological partnership” require the pressure of €7.3 billion and an almost 10 percent stake?

There is already speculation among analysts that Geely could accrue a majority stake in Daimler within a few years. Far-fetched? Not at all. Would that be bad? Not even.

It's just that in this new relationship it would not be Mr. Zetsche running the show, but Geely boss Li Shufu. This is the only way to explain the silence of Daimler's top management. In the past, when the rough-and-tumble practices of the global capital market were just beginning to take hold in Germany, we would have called this an unfriendly takeover, or at least a takeover attempt. Today nobody seems to be that sensitive anymore.

Of course, Daimler can certainly use an incentive to speed up its urgently needed transformation towards electric cars and software-powered mobility services, such as self-driving vehicles and car-sharing. Daimler should of course warmly welcome ideas for new technologies and mobility strategies, but it's not as if no progress were being made in Stuttgart, and as if the Germans didn't already have two long-standing partners in China, BAIC and BYD.

The point is that you choose your own partners. For reasons of political correctness, no one in Germany dares to call the new relationship between Daimler and Geely what it has been from the start: dangerous, if not hostile. There will be no glamorous Hollywood ending to this affair. Daimler and Geely are in for a road trip, which is akin to the drama Who’s afraid of Virginia Woolf. Daimler should be.

The author is chief correspondent in the Companies & Markets department. To reach the author: [email protected]