SHANGHAI – Beijing Automotive Group said on Tuesday that it would acquire a stake in the German automaker Daimler, and deepen its ties to China's huge but troubled car market and illustrate its growing efforts in the global automotive industry.
The Beijing company said it would acquire shares and voting rights equal to a 5 percent stake in Daimler. The two companies are already partners in China, which have long demanded foreign automakers to enter into comprehensive joint ventures with Chinese companies to create cars.
Beijing Auto's acquisition of a Daimler shareholding may devote concerns in Germany to China's growing influence in the country's industrial sector. In recent years, Chinese companies have been major buyers of medium and large German companies in the sector, particularly Kuka, a leading manufacturer of industrial robots. Last year, partly inspired by the Kuka agreement, the EU members agreed on new rules that give members more power to scrutinize foreign investments.
Li Shufu, chairman of Zhejiang Geely Holding Group, owns just under 10 percent of Daimler through a separate investment firm, which means that together Chinese companies will control nearly 15 percent of the company that makes Mercedes-Benz cars. Daimler, as the founders are considered to be inventors of the car, has long been a cornerstone of German industry.
"Acquisition is the Chinese wheelhouse to gather wealth and power," said Michael Dunne, CEO of Zozo Go, a car consultant in San Diego, using the abbreviation of Beijing Auto.
Beijing is also a major force in the shift towards electric cars because Chinese companies are the world's dominant producers of electrical and electronic equipment, while remaining in many of the technologies associated with the combustion engine.
Beijing Auto's investment in Daimler is likely to be less controversial than any other Chinese business intervention in Europe, because the two companies have worked together since 2003. Daimler already owns a 10 percent stake in Beijing Auto.
The transaction announced on Tuesday is more about strengthening existing bonds than it is about a new pressure from China for greater influence at Daimler, said Yale Zhang, CEO of Automotive Foresight, a Shanghai consulting firm
"This will strengthen their relationship, "Zhang said in a telephone interview.
The deal coincides with the efforts of car manufacturers across China to maneuver for control of joint ventures. President Xi Jinping announced last year, under pressure from the United States, that in the coming years he would eliminate a requirement that foreign automakers assemble cars in China only through 50-50 joint ventures with local automakers. The German automaker BMW has already announced plans to increase its stake in its joint venture with Brilliance Auto from China when today's regulations are wiped out.
Beijing Auto was able to acquire Daimler shares on the open market while relatively inexpensive. The stock has lost more than a third of its value since the beginning of 2018, and it has been under pressure since Daimler issued a surplus warning this month. The shares rose almost 5 per cent in Frankfurt on Tuesday.
Based on Daimler's current market capitalization, a 5 percent stake would be valued at about $ 2.8 billion.
Daimler said it welcomed the investment.
The Chinese market is and remains a key pillar of our success, not only for sales but also for our product development and production, ”said Ola Källenius, Daimler's CEO, in a statement.
Daimler's Chinese sales increased 5 percent last year compared to 2017, but a shadow hangs over the broader Chinese market. The car sales in the country have plummeted in recent months as consumers are showing signs of nervousness about lowering economic growth. New emission rules have also been a factor.
On July 12, Daimler warned that it would report a loss of EUR 1.6 billion, or USD 1.8 billion, for the second quarter. The company blamed for the poor results on the decline in sales and the costs of investigating whether diesel cars had sold as evacuated emission rules. Most car manufacturers are under pressure because sales fall in all major markets, including China.
Germany's luxury car manufacturers face a particularly serious challenge in China from Toyota and its luxury brand, Lexus. After many years of limited attention to the Chinese market, Toyota decided two years ago to significantly expand its presence in the country.
Luxury car sales have remained strong in China this year even though overall car sales have declined, making the Chinese market a top priority for global manufacturers. Lexus has gained market share while experiencing some of the fastest growth. BMW kept pace at least through April.
Mercedes has been following Lexus and BMW, with sales only up 3 percent in the first five months of this year compared to the same period last year, according to global consulting company LMC Automotive. Audi has been even worse, and sales of cars in the upper middle markets weakened markedly.
Beijing Auto and Geely are very different companies. Beijing Auto is under the strict control of the Beijing City Council, which in turn is controlled by the national government. Geely, on the other hand, is without a doubt one of the country's most entrepreneurial car manufacturers.
Geely was built by Mr. Li, a businessman in Zin province east of China. He started in the auto parts industry and now sits on top of an empire that includes several domestic brands and Volvo Cars of Sweden.
Geely has revived Volvo since buying it from Ford Motor in 2010. Geely's financial support has allowed Volvo to develop new models, invest in electric vehicles and open a factory last year in South Carolina.
Daimler's partnership with Mr. Li and Geely has been more distant. Hendrik Sackmann, a spokesman for Daimler, said the company regularly communicated with Mr. Li & # 39; s investment company, Tenaciou3 Prospect Investment Ltd., just as it does with other major investors. Daimler and Geely also have a joint venture focused on developing the German automaker's Smart subcompact cars into an all-electric brand.
Zhejiang, Geely's center of gravity, is also Mr. Xi's political base. But it is unclear whether it gives him any extra influence or flexibility in the decision-making process. In China, the private sector does what the Communist Party is asking to do. So if the Chinese government chooses to ask Geely and Beijing Auto to cooperate, they have little choice but to do so.
Having large stakeholders with affiliation with foreign authorities is not new to Daimler. The Kuwait Investment Authority, a sovereign wealth fund, began acquiring Daimler shares in 1964.
The Kuwaiti Fund now owns approximately 7 percent of Daimler. Dieter Zetsche, who resigned as the company's CEO in May, often talked about how much he appreciated Kuwait's support for Daimler's leadership over the years, and at least publicly desired Geely's unexpected acquisition of his stake last year.