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Daimler seeks mutual success with BAIC Motor after close of equity purchase

Xu Heyi and Hubertus Troska celebrates 10 years of strategic partnership between Daimler and BAIC.

Daimler AG has completed its acquisition of a 12 percent stake in BAIC Motor Co., Ltd., the passenger car unit of partner Beijing Automotive Group Corp. (BAIC Group) – China’s fifth largest automaker.

A ceremony celebrating the closing of the transaction was held on November 19 in Beijing between the two partners, less than 10 months after they signed the agreement in Stuttgart in February and follows a relatively quick approval by the relevant Chinese authorities. The closing also comes on the occasion of the tenth anniversary of strategic partnership between Daimler and BAIC Group.

On hand for the closing ceremony at the Beijing City Hall included Dr. Dieter Zetsche, chairman of the board of management at Daimler and head of Mercedes-Benz Cars; Hubertus Troska, Daimler’s board member responsible for Greater China and Bodo Uebber, Daimler board member and CFO. Representing BAIC Group were Chairman Xu Heyi, President Zhang Xiyong and CFO Ma Chuanqi.

From left to right: Bodo Uebber, Dr. Dieter Zetsche, Hubertus Troska, Xu Heyi, Zhang Xiyong and Ma Chuanqi

A milestone

The transaction, valued at €625 million ($840 million), breaks new ground as Daimler has become the first ever non-Chinese automotive company to invest in a Chinese passenger vehicle OEM. Daimler’s investment will take place through the issuance of new shares corresponding to a 12 percent stake in BAIC Motor, which is gearing up for an initial public offering (IPO) next year, most likely in Hong Kong.

Daimler will have two executives – Troska and Uebber – on the board of directors of BAIC Motor. Furthermore, BAIC Motor will increase its stake in the production joint venture Beijing-Benz Automotive Corp. (BBAC) by 1 percent to 51 percent, so that results can be consolidated into the soon-to-be public-listed company. In return, Daimler will increase its stake in the integrated sales joint venture Beijing Mercedes-Benz Sales Service Corp. (BMBS) established earlier this year by 1 percent to 51 percent.

“This is another historical milestone in a partnership that has already seen great success in the past, with joint production and sales activities ranging from passenger cars to trucks,” said Xu. “By further deepening our cooperation on a strategic level, the partnership between our two companies will face an even more prosperous future.”

Dr. Dieter Zetsche

Daimler to support BAIC Motor’s growth

Now that it has become a shareholder of BAIC Motor rather than simply a partner, Daimler will be even more interested in the successful development of BAIC Motor, according to Dr. Zetsche.

“The last 12 months were very successful for the cooperation between Daimler and BAIC Group and today is a fundamental chapter to that successful story,” Zetsche said in a media interview. “I’m confident with this stronger foundation of our partnership, we will further enhance our mutual success in the country and accelerate what has been accomplished so far to even better results in the future.”

In particular, Daimler will support BAIC Motor’s indigenous brand development and its IPO preparation. Zetsche believes that the closer the two partners work together, the more successful both will be.

Bodo Uebber

“We now have even higher vested interests by being a shareholder. We are more motivated to support our partner not just within our usual activities as far as Mercedes-Benz cars are concerned, but also BAIC Motor’s activities of its own brand,” said Zetsche. “We will provide our experience on automotive related matters but also contribute our experience on issuing IPO and how to present the company such as strategies, markets and price,” commented Uebber.

Troska believes that being part of the fifth largest Chinese automotive player will give Daimler more insights and understanding into the Chinese market. “It is part of our strategy and shows our deep interest to work with BAIC. China is the single most important market for Mercedes-Benz in the world, and we want to become more Chinese,” said Troska. “This is also a financial investment so it is in our interest to further develop BAIC Motor which will in turn benefit us.”

In fact, Daimler’s total cumulative investment in China by 2015, according to Troska, will be €4 billion. “You don’t have to convince us of the positive attitude to invest in our Chinese business,” said Troska.

Hubertus Troska

With regard to the possibility of BAIC Group taking an equity interest in Daimler, no decisions have been made, according to Zetsche. “We clearly told them that we are open to discussion and Chairman Xu has expressed interest. But no specific agreement has been made,” said Zetsche, emphasizing that Daimler is still very much open to investment from Chinese companies.

No policy hurdle

By being a 12 percent shareholder of BAIC Motor, Daimler’s minority share of 49 percent in BBAC is effectively increased by 6 percent to 55 percent, which is more than what the current industry policy allows. When asked whether one way to get around this policy hurdle would be the contingency that BAIC Motor gets public-listed in Hong Kong, Zetsche’s response was that Daimler did not have to get around anything at all.

“What we announced today is approved by the government, otherwise we couldn’t announce it,” Zetsche told CBU/CAR. “We came to an agreement after negotiations with BAIC about what we would like to do, explain and presented this to the officials, and received approval. So there is nothing to get around.”

Whether other competitors would follow Daimler’s investment model would be pure speculation, according to Zetsche. “We know what we are doing and intend to do,” said Zetsche.

China 2015 sales target intact

For Mercedes-Benz cars, the target of selling 300,000 vehicles in 2015 in China is still intact because a number of steps taken to improve the situation have shown positive impacts, according to Zetsche.

“We have combined our different sales activities into one integrated sales company in BMBS. We are adding 75 dealers this year. We are launching products with exciting reactions from customers all over the world, including China,” said Zetsche. “With additional products we will launch in the future, it gives us a great level of confidence that we will be able to pass the 300,000 units in 2015.”

Those products, according to Zetsche, will include the so-called premium compacts such as the A- and B-Class which are already on sale in China as imports. “We definitely have plans to industrialize one or two vehicles of that family from current and future generations,” said Zetsche.

Further down the road, Zetsche said China will play a huge role in Mercedes-Benz’s 2020 growth strategy of becoming the bestselling and most profitable luxury brand in the world. “We have to get into the same league as our competitors in China. We cannot accomplish our 2020 goal with a major disadvantage against them,” added Zetsche.

This year, Mercedes-Benz is expected to sell around 210,000 vehicles in China, far below Audi’s expected volume of around 480,000 units and BMW’s 360,000 units.

Possible Beijing brand EV as part of diversified NEV approach

When asked about Daimler’s new energy vehicle strategy in China, Zetsche said that it would be a diversified approach with a wide range of technological paths toward achieving low or zero emissions.

“We have been selling the S-Class hybrid and we are developing a plug-in version which will be launched next year and will be available in China as well,” said Zetsche. “We are cooperating with BYD to launch the battery electric vehicle Denza next year.”

In fact, the production version of the Denza EV will make its global debut at Auto China 2014 next April and be available at dealers in Beijing, Shanghai and Shenzhen from midyear.

Daimler is also discussing with BAIC the potential toward a Beijing branded electric vehicle, while Daimler’s own smart electric drive officially went on sale in China on November 21.

“So in this fast moving technological game, we think it’s smart to look for different directions. That’s why we are launching hybrids, plug-in hybrids as well as battery electric vehicles and even fuel-cell vehicles,” said Zetsche.

Market liberalization welcomed

Deepening reform and further opening up of the market was one of the central themes at the Third Plenary Session of the 18th Party Central Committee held earlier in the month, and Zetsche applauded this direction the country is moving toward.

“The further liberalization and market orientation of the Chinese economy is a very bold and encouraging move,” said Zetsche. “We will try to participate and contribute to the further development of the Chinese economy to the extent that we can.”

Regarding the possibility of taking a controlling stake in a Chinese OEM if the 50:50 JV requirement is relaxed, Zetsche said, “If we are faced with a different environment than today, we will make our decisions accordingly.”

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