At stake

Mercedes sold 282,000 cars in the first half of the year

“I’d like to think that the door has been barred,” said German government spokesman, Armin Gritnewald, after reporters asked him whether Daimler-Benz was safe from foreign takeover.

Yet Gritnewald was not responding to questions about Beijing Automotive Group’s (BAIC) purchase of a 5% stake in the German automobile company in late July. Nor was he referring to the acquisition of a 9.69% stake by Geely Motors’ founder, Li Shufu, in February 2018 either.

In fact, the idea that Germany could lose one of its most prestigious corporate assets to China would have seemed completely ludicrous when he did make those comments – in 1975.

The Iranian Shah was the thwarted buyer at the time. The then ruler had spent much of the 1970s searching for overseas assets to spend his country’s oil wealth on (until he was overthrown in 1979).

Much has changed over the past 40 years. It’s now primarily Chinese buyers hunting for high-profile foreign assets and technology transfers. But Germany’s desire to make sure that it retains control of key assets hasn’t diminished over the intervening decades. In 1975, Helmut Schmidt’s government concocted a closed-door deal, which led Deutsche Bank to purchase the 29% Daimler stake the Flick family had been trying to sell to the Shah. In 2019, Angela Merkel’s government is preparing legislation enabling it to take significant stakes in German companies to protect them from foreign takeovers. Last December, it also introduced a right of veto over non-European buyers trying to purchase more than 10% of companies in strategic industries.

Daimler-Benz has always been an attractive target because it doesn’t have a controlling family behind it like BMW (the Quandts) and Audi (the Porsche and Piech families). Geely’s Li is currently its largest shareholder, followed by the Kuwait Investment Fund on 6.86%.

German business magazine WirtschaftsWoche welcomes the Chinese as the company’s largest combined investor. “BAIC is a far more appropriate partner than the Kuwaitis,” it pointed out. “The Sheikh’s participation has repeatedly proven to be a brake when it comes to electric vehicles (EV).”

Other German newspapers take a more cautious view. Die Welt commented that the investment required “vigilance” as it generates “opportunities and risks”. On the plus side, it believed the Stuttgart-based company should benefit from “Chinese know-how in e-mobility and artificial intelligence”. Of course, this suggestion that Germany could learn from China represents a remarkable turnaround from a few years ago and particularly from a country that has always prided itself on its advanced technological and manufacturing prowess.

But Die Welt also warned Daimler to be careful that it doesn’t get caught up in “Beijing’s power games”. Handelsblatt took up a similar theme, suggesting that Daimler could get taken over by a pincer movement if Geely and state-owned BAIC “join forces to achieve common interests”.

Right now that seems highly unlikely, given their white-hot rivalry at home. BAIC received a nasty shock when Geely began to muscle in as Daimler’s EV partner in 2018. Geely is now producing Daimler’s EV brand Smart and in March, the two established a car hire and ride-hailing joint venture, Weixing Technology. But BAIC and Daimler’s older partnership dates back more than a decade to when Beijing-Benz was constituted (out of a former BAIC-Chrysler JV). BAIC’s recent stock purchase amounts to a cross-shareholding – after all Daimler already owns a major stake in Hong Kong-listed BAIC Motor and owns 50% of the joint venture Beijing-Benz (see WiC332 for more on the Stuttgart firm’s various shareholdings in China). Daimler also has 3.93% ownership in a Shanghai-listed BAIC associate, the EV manufacturer BJEV.

BAIC certainly got a better deal than Geely: €2.5 billion ($2.78 billion) for a 5% stake in Daimler compared to $9 billion for a 10% one. Over the past year, Daimler’s shares have crumbled thanks to the diesel emissions scandal and ambitious expansion plans (free cashflow stood at minus €3.3 billion at the end of the first half).

One country where Daimler has done better is China, which made up a third of global sales and where demand for German luxury cars has proven surprisingly resilient – Beijing-Benz continued to post strong growth in the first half of 2019, with sales hitting 282,000 units. In 2018, its sales reached 485,000 units. Many wonder whether this will encourage Daimler to follow BMW’s lead and seek control of its BAIC joint venture, now that the regulations allow it.

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