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February 23, 2018 News of the Day: China's Geely Buys $9 Billion Stake in Daimler, BMW in Talks with Great Wall to Build Electric MINI's in China

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【Summary】February 23, 2018 News of the Day

Eric Walz    Feb 23, 2018 2:38 PM PT
February 23, 2018 News of the Day: China's Geely Buys $9 Billion Stake in Daimler, BMW in Talks with Great Wall to Build Electric MINI's in China

Chinese manufacturer Zhejiang Geely Holding Group Co. has acquired a stake worth about $9 billion in Daimler AG, which will make Geely the largest investor in the German automaker.

Daimler confirmed the holding in a regulatory filing, shortly after Bloomberg News first reported that Geely has been building up a position of just under 10 percent through purchases in the stock market in recent weeks. The German luxury car company said it welcomes another major investor.

The investment in the parent of Mercedes-Benz furthers Hangzhou-based Geely's foray into the European premium automotive market and ends months of speculation. The Chinese company, controlled by billionaire Li Shufu, already owns Volvo Cars AB, whose refreshed line-up of vehicles have made it a popular alternative to the German luxury models from Mercedes, BMW and Audi.

"A Geely stake in Daimler would underscore their push for cooperation that'll help them get more expertise, like electric cars," said Frank Biller, a Stuttgart-based analyst with Landesbank Baden-Wuerttemberg. "At the same time, this opens another path into China for Daimler."

Daimler has been on an upward trajectory, reclaiming the No. 1 spot in luxury cars from BMW AG by broadening its offerings to include more SUVs and freshening its lineup with sportier designs. The Stuttgart-based carmaker sees the investment as a vote of confidence, spokesman Joerg Howe said by phone.

"Li Shufu is a Chinese entrepreneur Daimler knows well and regards highly in terms of his competency and focus on future developments," Howe said. "Daimler already has a strong footing in China. We have a very strong partner with our existing cooperation with BAIC Motor."

Chinese companies have been more active buying into German companies in recent years. HNA Group Co. has a stake of about 8.8 percent in Deutsche Bank AG, and industrial-robot maker Kuka was purchased by Midea, the world's largest appliance maker a few years ago.

In December, Li became the biggest shareholder in Sweden's Volvo AB, the world's second-largest truckmaker, following a $3.9 billion deal with activist investor Cevian Capital AB. In 2010, he acquired Volvo Cars from Ford Motor Co., and last year won control of British sports-car maker Lotus Cars Ltd.

The Chinese firm, which controls Hong Kong-listed Geely Automobile Holdings Ltd., has ambitious expansion plans for both its home market and overseas as it takes on global car majors.

Geely plans to start selling a compact five-seat SUV, currently marketed under the Lynk & Co brand, outside China from mid-2019.

BMW in Talks with Great Wall to Build Electric MINI's in China

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Reports surfaced last year of a possible  joint venture between BMW Group and Chinese manufacturer Great Wall for an all-electric MINI. Today, BMW has confirmed that talks as well as signing a "letter of intent" with the Chinese manufacturer are ongoing. BMW also confirmed the production of the first battery electric MINI at the main plant in Oxford starting in 2019.

The next steps will imply the agreement on the details of a possible joint venture and cooperation agreement and clarify aspects such as the choice of production location and concrete investments. The end goal seems to be the development of electric vehicles under the MINI brand and not just for the local market. The BMW Group has no plans to set up an additional sales organization in China. The company is firmly committed to continuing the successful cooperation with the established sales structure and the cooperation with Brilliance Automotive.

Independently of its strategic considerations towards the MINI brand, the BMW Group will further expand its highly successful BMW Brilliance Automotive (BBA) joint venture in China with its partner, Brilliance. In addition to its two automobile production locations, BBA already runs an engine plant, which includes a battery factory for electrified BMW brand vehicles produced locally in Shenyang. This is the first battery factory operated by a premium automobile manufacturer in China.

In recent years, BBA has become a cornerstone of the BMW brand's success in its largest market and serves as a model for the continued development of MINI in China. Around 560,000 BMW brand vehicles were delivered to customers in China in 2017 – more than in the next two largest markets, the US and Germany, combined. In 2017, China was MINI's fourth-largest market, with around 35,000 units delivered. This underlines the brand's additional global potential.

Expansion of the BMW brand in its largest markets, such as China, has not led to a decrease in production at the company's German plants. On the contrary, between 2007 and 2017, production in Germany increased by close to a quarter to around 1.15 million vehicles per year. At the same time, almost half of all BMW production now takes place at plants outside Germany. A similar growth strategy could accelerate development of the MINI brand significantly without questioning the BMW Group's commitment in the UK.

Nissan's Self-Driving Taxi is Ready to Pick Up Passengers

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YOKOHAMA — Nissan Motor Co is taking its first steps to becoming an operator of autonomous vehicle services, hoping to break into a segment set to be dominated by Uber and other technology firms.

While automakers for more than a century have based their business models on individual car ownership, Japan's No.2 automaker and its rivals, including Uber are now preparing for a future in which self-driving cars are anticipated to curb vehicle ownership.

In partnership with Japanese mobile gaming platform operator DeNA Co, Nissan will begin public field tests of its Easy Ride service in Yokohama next month, becoming among the first major automakers anywhere to test ride-hailing software developed in-house, using its own fleet of self-driving electric cars.

Easy Ride, which Nissan plans to launch in Japan in the early 2020s, is meant to feel more like a concierge service on wheels where passengers can make restaurant recommendations, for example, while the car is on the move.

The announcement follows an agreement by Nissan and its automaking partners Renault SA and Mitsubishi Motors Corp earlier this month to explore future cooperation with Chinese transportation services conglomerate Didi Chuxing.


These moves mark a push by the automaker to avoid becoming just a vehicle supplier to car-sharing companies.

"We realize that it's going to take time to become a service operator, but we want to enter into this segment by partnering with companies which are experts in the field," Nissan's chief executive, Hiroto Saikawa, told Reuters in an interview this month. A person close to the deal has said that the agreement is intended to explore opportunities for Nissan and others to supply battery-electric cars to Didi Chuxing for a new electric car-sharing service it is setting up in China.

He noted, however, that Nissan and its alliance partners could explore a broader agreement, which might possibly involve Nissan providing self-driving taxi technology to the dominant Chinese ride-hailing service.

"We expect that the technology that we gain (from Easy Ride) will help all companies in the alliance to improve their capabilities," said Ogi Redzic, head of connected vehicles and mobility services at the automaking group.

"When it comes to services, we will probably have different local partners who will help bring services to their respective markets."

Creating an upscale autonomous taxi service, rather than trying to beat other companies on price, could help Nissan against bigger competitors like Uber, market experts say.

"By doing something with a more premium feel, it could allow Nissan to charge more for its service and potentially relieve some of that profitability pressure they could face if they were to try to race to the bottom in terms of pricing," said Jeremy Carlson, automotive analyst at IHS Markit.

Automakers are looking for ways to profit from the rise of car-sharing services, which along with self-driving cars, are likely to lead to a decrease vehicle ownership and chip away at future profits.

IHS Markit expects global sales of autonomous vehicles will soar to more than 33 million units in 2040 from 51,000 in 2021, while Goldman Sachs has predicted that the ride-hailing market will grow eightfold by 2030 to be five times the current size of the taxi market.

Nissan's partner DeNA, is one of the world's biggest social gaming networks with 30 million users. The company's expertise in developing real-time user interfaces and payment systems will help give shape to the taxi service platform.

DeNA already operates a user-sourced car-sharing app and has been testing self-driving shuttle buses in Japan, and had been developing a self-driving taxi system with a Japanese robotics start-up before teaming up with Nissan.

Nissan will launch its first public trial of the self-driving taxi service in Tokyo on March 5.

DHL Exec Says Switching From Diesel to Tesla's Electric Trucks Could Pay Off

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The numbers behind Tesla's long-distance Semi electric trucks are close to making sense for hauliers looking at a shift away from diesel that may save them tens of thousands of dollars a year, according to an executive with DHL.

Jim Monkmeyer, president, Transportation at DHL Supply Chain, was among the first to order the trucks Silicon Valley company is expected to begin producing in 2019.

He says the 10 trucks ordered are a test run and that he is still years away from switching the majority of his fleet of trucks to electric. But he is taking heed of a major shift away from diesel and the money it could save DHL.

He says he could potentially pay off the difference between the purchase price of a Tesla Semi and a traditional diesel truck in less than two years, thanks to savings on maintenance and fuel.

"We are estimating that we could have pay back within a year-and-a-half based on energy usage as well as lower maintenance cost," Monkmeyer told Reuters in an interview from his office in Columbus, Ohio.

"The maintenance savings can be enormous as well. Just because the engines are much simpler in terms of the number of parts and the complexities of the parts."

The payback benefit is one of the keys to the success of the new generation of electric trucks and DHL, a unit of Germany's Deutsche Post (DPWGn.DE), has a history in the area, having already introduced 5,000 of its own electric "scooter" vans for local deliveries.

The two-year timeline also chimes with assurances being given by Daimler AG's van unit to customers interested in its forthcoming electric Sprinter van that the total cost of ownership will be the same as the cost to own and operate a conventional van over a few years.

Monkmeyer says he does not expect to buy just Tesla electric trucks, but the in-depth discussions on price and feasibility that DHL is running on the trucks are in line with several small and large international haulers who spoke to Reuters.

A typical semi truck runs around 65,000-100,000 miles a year, and Tesla has promised a 20-percent saving on the per-mile operating costs that truckers pay now, estimating its new Semi will cost $1.26 per mile compared to what it says are industry standards of around $1.51 for diesel trucks.

Analysts, however, say the figures continue to evolve; the $1.51 cost assumes prices for diesel fuel and that fuel economy costs remain static.

They also say fuel efficiency for diesel trucks is expected to advance further, with a compounding improvement in the high single digits by 2020, potentially limiting the cost savings advantage suggested by Tesla.

"The problem is they (Tesla) are aiming at a moving target, and even with that the electric (trucks) would be lower cost (in terms of operation) but it wouldn't be quite as big a difference," Jefferies analyst Stephen Volkmann said.

Monkmeyer says the company is still mapping out costs, but believes the two trucks already look like they will be "close enough" to make the switch feasible.

Still, he says larger concerns loom around Tesla's charging infrastructure and how haulers plan to switch from diesel to swift "mega-charging" of electric vehicles.

"The biggest issue is going to be how is that grid provided and how is it supported and how quickly can we get a network out there for use nationwide, throughout North America, throughout the world," he says.

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