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Chinese Automaker BAIC Buys a 5% Stake in Daimler

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【Summary】​China’s Beijing Automotive Group Co Ltd (BAIC) has bought a 5% stake and voting rights in German automaker Daimler, as the company looks to fend off competition from rival automaker Geely.

FutureCar Staff    Jul 23, 2019 11:05 AM PT
Chinese Automaker BAIC Buys a 5% Stake in Daimler

China's Beijing Automotive Group Co Ltd (BAIC) has bought a 5% stake and voting rights in German automaker Daimler, as the company looks to fend off competition from rival automaker Geely. 

Geely, the parent company of Swedish automaker Volvo Cars, emerged as a possible rival to BAIC after Li Shufu, the chairman of rival Zhejiang Geely Holding, bought a 9.69% stake in Daimler with the aim of forging an alliance to develop electric and self-driving cars in the world's biggest auto market.

The latest investment from BAIC gives two Chinese automakers a 15% percent stake in Daimler.

"This step reinforces our alignment with, and strong support for, Daimler's management and strategy," BAIC chairman Heyi Xu said on Tuesday.

BAIC and Daimler operate Mercedes-Benz factories in Beijing through Beijing Benz Automotive, a joint venture between the companies established in 2005. Daimler holds a 49% stake in the joint venture with BAIC owning the remaining 51%.

Reuters reported in May that BAIC was seeking to buy a stake of up to 5% in Daimler as a way to secure its investment in Beijing Benz Automotive. Daimler said it welcomed BAIC's investment.

"The purchase of Daimler shares by BAIC will strengthen the cooperation between BAIC and Daimler," said Jefferies analyst Patrick Yuan.

"From this point of view, the possibility of Daimler increasing its stake in the Beijing Mercedes-Benz joint venture will be greatly reduced, which will benefit the shareholders of BAIC's listed companies."

China Removing Caps on Foreign Ownership of Joint Ventures

In April 2018, China announced an overhaul of regulations governing its auto industry amid escalating trade tensions with the U.S. Foreign auto makers were previously required to build vehicles in China through joint ventures with a chinese partner automaker, in which they could hold a 50% stake at most. 

The new rules allow them to own all of their Chinese operations and foreign automakers are buying a bigger stake in their joint ventures. For electric automaker Tesla, the relaxing of the rules means its can enter the world's biggest auto market without a partner while avoiding steep import tariffs.

Tesla will build the Model 3 and upcoming Model Y crossover at its Shanghai Gigafactory, which is currently under construction and set to open later this year.

Daimler rival BMW become the first foreign automaker to take advantage of the new regulations. In Oct 2018, BMW paid around $4 billion to increase its stake in its joint venture with Brilliance China Automotive Holdings Ltd. to 75% from 50%. The new joint-venture agreement lasts through 2040.

Shares in Daimler rose by more than 2.5%, while BAIC's listed subsidiaries, BAIC Motor Corp and BAIC BluePark New Energy Technology, climbed by more than 3% and 5% respectively after the news.

Daimler has reassured BAIC that any new industrial alliances involving Mercedes and a Chinese partner would only happen after a consensus is found with BAIC.

In March, Daimler agreed to build the next generation of its tiny Smart city cars together with Geely, which is based in Hangzhou.

resource from: Reuters

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