Daimler-BAIC investment boosts Sino-German economic ties
Move will help carmakers cope with fast-changing industry
German luxury car maker Daimler announced on Monday that it will significantly expand automotive production in China with its locally based business partner Beijing Automotive Industry Holding (BAIC).
In a statement, Daimler outlined plans to invest 1.5 billion euros ($1.83 billion) with BAIC to expand their manufacturing joint venture, Beijing Benz Automotive Co (BBAC).
BBAC will use these funds to establish an additional production location for “high-quality premium vehicles” at the Beijing Yizhuang industrial park as part of its “Made in China, for China” commitment.
The German carmaker also emphasized it would direct more resources into the development of new-energy vehicles to comply with strict environmental regulations that will enter into force in China by 2019.
“Local production is a strong pillar of our sustainable development in China. By deepening our cooperation with our local partner BAIC, BBAC will continue playing a key role for Mercedes-Benz in China,” said Hubertus Troska, member of the board of management of Daimler.
The announcement was made just a few days after Daimler revealed that Li Shufu, owner of Chinese auto company Geely, had become the single largest Daimler shareholder by acquiring 9.69 percent of its shares for 7.5 billion euros.
In addition to being known as the owner of Swedish automaker Volvo Cars, at the end of last year, Geely also became known as the largest shareholder of commercial vehicle manufacturer Volvo Trucks.
Positive reactions
Reactions in the German media were mostly positive with business newspaper Handelsblatt saying that “Daimler should be open toward the Chinese major shareholder.”
A comment in conservative newspaper Frankfurter Allgemeine Zeitung was headlined “Cause for concern? Not really,” while the Mannheimer Morgen ran the headline “Don’t be afraid of the investor.”
The German automaker welcomed Li’s move.
“Daimler is pleased to announce that with Li Shufu, it has gained another long-term shareholder, who is convinced of Daimler’s innovation strength, strategy and future potential,” the carmaker said in a press statement.
The document further emphasized that “Daimler knows and appreciates Li Shufu as an especially knowledgeable Chinese entrepreneur with a clear vision for the future, with whom one can constructively discuss changes in the industry.”
Labor representatives on Daimler’s supervisory board were upbeat about the prospects for cooperation between their company and Geely’s owner.
“Our expectation of Li Shufu is that he has a long-term interest in Daimler and wants to continue to develop our company together with its employees,” the statement read.
Michael Brecht, president of Daimler’s general works council, noted that Geely’s acquisition of Volvo had resulted in the successful renewal of the Swedish carmaker.
Li has expressed that traditional carmakers will only be able to withstand commercial challenges from new contenders such as Tesla, Google and Apple, if they form alliances.
According to German media reports, the Chinese investor is particularly interested in cooperating on autonomous driving and electric mobility solutions with Daimler.
From this view, Daimler’s involvement in multiple joint ventures with Chinese partners reflects the challenging industrial environment.
Wu Shuocheng, a Shanghai-based independent analyst, told the Global Times on Tuesday that although no long-term motivation (connected to the stake buy) was announced by Geely, it is reasonable to assume that Geely hopes to gain expertise from the German automaker, but the process won’t be an easy one.
Geely’s stake purchase rekindled fears in Germany of its highly prized expertise falling into Chinese hands, Reuters reported Monday.
German economy minister Brigitte Zypries stuck to Berlin’s position that Geely’s move was a business matter, but said Germany’s openness must not be exploited by other countries, according to Reuters.
Geely approached Daimler in November and suggested an issue of shares that Geely could buy, as well as giving access to battery technology to help set up an electric car joint venture in Wuhan, capital of Central China’s Hubei Province, Reuters said.
Daimler declined to do a deal as it had reservations about a new industrial alliance that might alienate its existing Chinese joint venture partner BAIC, a person familiar with the carmaker’s thinking was quoted as saying to Reuters.
“Besides its strength in electric cars or autonomous driving technology, Daimler’s value also lies in its high-ranking comprehensive competitiveness – its technological prowess accumulated over the years, its expertise in management and brand building. These are attractive aspects for a domestic player such as Geely,” Wu said.
Challenges ahead
However, acquiring and using foreign technology can be challenging, Wu said, noting that a great many Chinese automakers performed poorly in this regard in the past, especially when no set strategy was put in place.
Lynk & Co, the new car brand owned by Zhejiang Geely Holding Group, was designed and developed by Geely’s China Euro Vehicle Technology R&D center in Sweden and built in China.
Wu said Lynk & Co was a successful example of a Chinese brand learning from a world leader, as the new car incorporated some know-how from the Swedish carmaker.
China is already the single largest market by sales for Daimler and its German rival Volkswagen. Figures released on Friday by the Federal Statistical Office of Germany showed cars were the most valuable German exports in 2017, underscoring the growing importance of German-Chinese trade for economic growth.
Both countries have adopted complementary “Industry 4.0” and “Made in China 2025” strategies in response to the challenges and opportunities created for manufacturing businesses by automation, leading to intensified industrial cooperation.
China is also the world’s foremost renewable energy producer, another area where the interests of German and Chinese policymakers to transition to a greener economy overlap.
China and Germany have increasingly looked to each other as partners in international forums. The same holds true for trade policy.
Chinese imports have helped Germany reduce its trade surplus, while Sino-German cooperation on industrial technology and German exports of high-value added products have contributed to China’s transition from an export-oriented growth to a more consumption-driven growth.