Chinese carmaker BAIC takes 5% stake in Daimler

China’s BAIC has bought a 5 per cent stake in Daimler for about €2.5bn in a move analysts said was aimed at cementing the carmaker’s partnership with the German luxury automotive group and preventing rival Geely from undermining the alliance.

BAIC chairman Xu Heyi said in a statement that the investment was intended to strengthen the company’s ties with Daimler, which has held a stake in the Chinese carmaker’s Hong Kong-listed arm, BAIC Motor, since 2013.

Chinese carmaker Geely, which owns Volvo Cars and Lotus, acquired a 9.69 per cent stake in Mercedes-Benz-manufacturer Daimler for $9bn in early 2018 in a sign of the group’s global ambitions.

“BAIC sees Geely as a threat. The joint venture between Daimler and BAIC is the core of the group’s business,” said John Zeng, managing director of research group LMC Automotive Shanghai.

China’s passenger vehicles market, the largest in the world by sales of new vehicles, shrank last year for the first time since the 1990s because of a reduction in buyer subsidies and weak consumer confidence.

Sales have continued to decline in the first half of 2019. But luxury foreign brands have been less affected by the downturn than cheaper marques, making Chinese manufacturers increasingly dependent on foreign joint ventures for profits.

Mercedes-Benz sold more than 650,000 cars in China last year and just under 350,000 in the first half of 2019.

Although BAIC manufactured Daimler’s combustion engines in China, Geely’s involvement with the German carmaker represented a long-term threat, Mr Zeng said.

Geely and Daimler formed a smart car joint venture in March, which will build electric Smart cars in China to be sold globally.

“Daimler has not made its final decision on electric vehicles yet,” he said, adding that Geely’s founder Li Shufu had a “long-term vision” for his partnership with Daimler.

Strengthening its partnership with Daimler would help BAIC weather the downturn in China given Mercedes’ strong position in the still growing premium end of the market, according to Yale Zhang of Automotive Insights, a Shanghai consultancy.

“The premium sector is most resistant to the shrinking market because people in big cities still have money,” Mr Zhang said. He said BAIC’s traditional marques and its joint venture with South Korean carmaker Hyundai were struggling.

Daimler chairman Ola Källenius said in a statement that the company was pleased BAIC was now a long-term investor in Daimler. “The Chinese market is and remains a crucial pillar of our success — not only for sales but also for our product development and production,” Mr Källenius said

Mercedes marque cars sold in China are manufactured either through a BAIC joint venture set up in 2005 or a separate venture in Fujian province, in which BAIC owns a 35 per cent stake. The two companies also run a joint research and development centre in Beijing.