State-owned company as shareholder: China’s influence at Daimler has grown

Investors from China now hold almost 20 percent of the shares in the automaker Daimler. Could the traditional Stuttgart company come to a complete takeover of power?

The Stuttgart-based car maker Daimler has a new but already well-known major shareholder. The state-owned Beijing Automotive Group (BAIC), the Swabian joint venture partner in China, surprisingly announced that it already held 9.98 percent of the voting rights in the DAX group. Only five percent were previously known. BAIC is thus Daimler’s largest shareholder, ahead of Li Shufu, the owner of the competing private-sector car maker Geely. Li had secured 9.69 percent in Daimler for 7.5 billion euros at the beginning of 2018 and has since been the largest single shareholder.

Together, the two investors hold almost 20 percent of the traditional German company – more than any other investor. The third largest shareholder with a stake of 6.8 percent has been the Kuwait state fund for many years. BAIC had only got into Daimler in July 2019 and acquired five percent of the shares. Apparently, the Chinese used Daimler’s dramatic price slump in the first phase of the pandemic to acquire additional shares in Daimler.

Sensitive question about the influence of power

The news agency Reuters reported already reported a year ago that BAIC wanted to increase its stake in Daimler to ten percent. The goal is to replace Geely as the largest shareholder and to get a seat on the supervisory board of Daimler. BAIC has now achieved at least the first goal.

This begs the question of what intention the Asian investors are pursuing at Daimler – after all, the acquisition of shares also means a shift in the balance of power. The rise of Geely to become the largest Daimler shareholder had already sparked discussions. The then economics minister Brigitte Zypries of the SPD expressed concerns that a Chinese competitor could gain insight into Daimler’s strategy. The grand coalition was fundamentally skeptical of the growing influence of Chinese, mostly state-controlled companies on German key industries.

Do the Chinese now also want to expand their influence at Daimler, are they even aiming for a blocking minority? They are only a short distance from the 20 percent required for this. However, experts point out that the investors are competitors. BAIC is Daimler’s industrial partner in China, while Geely, owned by Li Shufu, is a private company that also owns the Swedish car maker Volvo. BAIC and Geely always stress that they do not forge joint plans. And if it does? In contrast to VW and BMW, Daimler has no designated anchor shareholders – i.e. investors who hold a significant stake in a company and do not sell it. This means that the Stuttgart-based company is considered a potential takeover candidate.

“Politically not feasible”

“Of course we don’t know what’s going on behind the scenes, but both BAIC and Li Shufu have emphasized that they don’t want to buy any more shares in Daimler. That’s why I think speculations about an imminent takeover of power at Daimler are unrealistic,” said Frank Schwope, auto expert at NORD / LB in Hanover and lecturer at the technical college for medium-sized companies, tagesschau.de. The expert considers a takeover of power “politically not feasible”. Such an attempt would lead to serious rifts between Berlin and Beijing. “I think the Chinese are also aware of that,” said Schwope.

Other experts such as Ferdinand Dudenhöffer, director of the private CAR-Center Automotive Research in Duisburg, regards BAIC and Geely more as strategic investors who are not out to increase the value of their shares and then sell them at a profit. Rather, they are interested in know-how and alliances. At Daimler, assumptions about a Chinese takeover are also vigorously rejected. The “Handelsblatt” quoted a high-ranking Daimler manager as saying that this scenario was “just nonsense”.

Decades of cooperation

BAIC and Daimler have been working together for almost 20 years. The companies stated that the mutual participation underscores the great importance of their cooperation. This is “an excellent example of German-Chinese cooperation, which makes significant contributions to bilateral industrial cooperation, technological innovation and economic and social developments,” said BAIC. Daimler boss Ola Källenius also found words of praise: “We are delighted with the commitment of all long-term shareholders who support our strategy”.

In fact, Daimler has benefited from working with BAIC. In the past ten years alone, sales of cars of the brand with the star in China have more than tripled – to over 600,000 vehicles per year. China has thus become Daimler’s most important sales market. Over a third of the production is sold in the People’s Republic. According to experts, half of the group’s profit is likely to come from China by now. This year, Daimler had made a profit of around one billion euros from the joint venture with BAIC by the end of September.

Daimler also wants to increase

In addition, the relationship with BAIC is mutual. The Stuttgart-based company has a cross-shareholding with the group and holds 9.55 percent of the shares in BAIC Motor, the group’s car subsidiary. For its part, Daimler is now striving to increase its stake.

Frank Schwope considers the growing influence of the Chinese on Daimler to be beneficial in terms of its market position. “If it leads to a better standing of Daimler in China, the largest automobile market in the world, it should also boost sales,” said the expert. And that’s what makes a good shareholder.