Li Shufu, who has taken a 9.69 percent stake in Daimler, is no stranger to the firm’s senior management. The self-made billionaire, owner of Chinese carmaker Geely, has held discussions with the German carmaker on several occasions in recent years. Nonetheless, Friday’s announcement took the company by surprise.
The Geely move was “considerably more than we expected,” said a source within the firm. Daimler had anticipated Geely acquiring a stake of around of 5–6 percent. The move makes Mr. Li the German carmaker’s largest shareholder. In October, the Chinese billionaire asked Daimler to issue fresh equity so he could take a stake, but was turned down because of disagreements on price.
Unlike rivals BMW and Volkswagen, Daimler does not enjoy the backing of a wealthy family investor. In recent years, the company has cast its net wide for major investors, particularly in China. Their preferred partner would be BAIC, a state-owned carmaker, and an existing production partner, but the Chinese government is said to have blocked closer cooperation.
Geely will likely be more disruptive than Daimler's other major investors.
The Daimler shareholding will be not be held directly by Geely, but by Tenaclou3 Prospect Investment, an investment vehicle owned by Mr. Li. Morgan Stanley and Bank of America are said to have advised on the deal. At almost 10 percent, Mr. Li’s stake considerably exceeds the 6.8 percent held by the Kuwaiti sovereign investment fund, and the 3.1 percent held by Renault-Nissan.
The move has worried Daimler’s management team. Both Kuwait and Renault-Nissan have been relatively undemanding investors. Kuwait only demanded a seat on the board last year, while Daimler’s manufacturing partnerships with Renault have been smooth and low key.
Mr. Li’s intervention promises to be far more disruptive. “Daimler is an outstanding company with a first-class management,” Geely said in a statement. But it also hinted at the logic underlying the deal:“The competitors that challenge the global car industry in the 21st century are not part of the automotive industry today.” To win out in this environment called for new alliances and partnerships, it said.
Reaction on the Daimler side was cool, welcoming Mr. Li as an “especially knowledgeable Chinese entrepreneur with clear vision for the future, with whom one can constructively discuss the change in the industry.”
Daimler management are worried that Geely’s agenda may impact on their strategic choices. Industry sources suggest the Chinese firm wants a seat on the Daimler board and partnerships in electric vehicle production, in particular in battery technology. Daimler has invested heavily in electric vehicles and is seen as a leader in the field. It plans to launch up to 10 fully electric models in the coming years.
China is the company’s largest market: it sold around half a million cars there in 2017. Next year will see the imposition of new Chinese production and sales quotas, obliging manufacturers to achieve 8 percent of sales with all-electric vehicles. Failure to comply will mean stiff fines. This has resulted in a wave of new partnerships between Chinese and foreign carmakers.
The German company has already signed a comprehensive joint venture with BAIC, including for the production of the electric Mercedes brand EQ, as a well as partnership with BYD, a Shenzen-based manufacturer. Conflicting partnerships are a real danger in the Chinese car business: last year, Mercedes competitor Audi saw Chinese sales slump after multiple partnerships led to dealer boycotts.
Daimler management will hardly welcome a competitor's representative on their supervisory board.
Geely’s ownership of Swedish carmaker Volvo, which it bought from Ford in 2010 for $1.8 billion, will also present a problem. The two companies enjoy a close relationship, with considerable sharing of technology. Last year, they announced the launch of Lynk & Co, a new joint brand, with a strong focus on electric technology. Late in 2017, Geely also acquired 15 percent of Volvo Trucks, a separate company to Volvo cars, and the biggest competitor to Daimler’s truck division.
Daimler management will not welcome a competitor’s representative on their board, sitting in on discussions of strategy and new models. Mr. Li’s promise, in his statement Friday, to “fully abide by the company charter and governance structure of Daimler and respect its values and culture” are unlikely to assuage those fears.
An electric version of Mercedes’s micro-sized Smart car could end up one future area of cooperation between Daimler and Geely. The Smart brand will go electric in other markets by 2020, leaving China the only major territory where it has a combustion engine. On Friday, rivals BMW announced Chinese production of an all-electric Mini, in collaboration with Great Wall Motors. Selling smaller cars in China’s burgeoning cities is seen as one way to satisfy the looming quotas for electric cars.
Markus Fasse specializes in aviation and automobile industry news. Martin Murphy covers the steel, car and defense industries for Handelsblatt. Katharina Slodczyk is a finance reporter based in Frankfurt. Sha Hua is Handelsblatt's China correspondent, based in Beijing. Robert Landgraf is Handelsblatt's chief correspondent for the financial markets. To contact the authors: [email protected], [email protected], [email protected], [email protected], [email protected]