Geely's empire

Mercedes-Benz maker fears new, active Chinese investor

Volvo reagiert auf Geely-Einstieg bei Daimler
Is this a friendly bear? Daimler wants to know. Source: DPA

Li Shufu, a self-made Chinese billionaire, is a bit like Henry Ford or VW’s Ferdinand Piëch. Mr. Li founded carmaker Geely in 1986 as a refrigerator maker and started making cars in the late 1990s. Geely, which means “lucky” in Chinese, is now China’s largest private carmaker; it owns Volvo and uses Swedish technology in its vehicles.

Just like Mr. Ford and Mr. Piëch, the grandson of VW Beetle designer Ferdinand Porsche and a former CEO of VW, Mr. Li is an engineer. Like Mr. Piëch, the 54-year old Chinese businessman steered his company so it could include a number of brands that could share platforms and development costs.

Mr. Li’s activism has executives at Daimler worried. CEO Dieter Zetsche and his team learned on Friday that Geely had overnight become the single biggest shareholder in the maker of Mercedes-Benz cars and trucks with a 9.69 percent stake.  Mr. Li, a long-time Mercedes-Benz fan who modeled Geely’s first car after one, is eyeing one of Daimler’s 20 supervisory board seats, something the Germans dislike, sources told Handelsblatt. The non-executive board oversees management and discusses vital information, such as strategy, new models and technologies. “We cannot share our discussions with a representative of one our rivals,” a source said.

Mr. Li is making an offer Daimler may find hard to refuse.

Indeed, through its ownership of Volvo cars as well as an investment in Volvo Trucks, Geely competes with Daimler’s luxury cars and its semi-trailers and buses. Although legally questionable, Mr. Li could steal Daimler’s expertise and apply to his car empire, which also includes the maker of London’s taxis and Terrafugia, a US maker of flying cars. Currently, the consideration is mostly theoretical, because Daimler’s articles of association do not allow people who work for rival companies to join its supervisory board. Its articles also grant no rights to major shareholders to nominate non-executives. The state of Kuwait, which owns 6.8 percent of Daimler, has had a representative on the panel since last year, although he was chosen by a majority of shareholders.

Daimler, however, is anxious about Mr. Li’s investment for another reason: It is at odds with existing partnerships in China.  The world’s largest maker of luxury cars has been a long-time partner of BAIC, a state-controlled carmaker and China’s biggest maker of electric cars. In fact, on Sunday, Daimler announced a €1.5 billion investment with BAIC in a new, second plant operated by their joint venture, Beijing Benz Automotive. In addition, the German company makes cars in China with BYD, a carmaker backed by Warren Buffett. Adding a third Chinese partner to its ventures is not on Daimler’s wish list, sources told Handelsblatt. In a statement reacting to Geely’s stake, the Germans cryptically said: “Daimler has a broad-based portfolio and footprint in China and with BAIC, a strong partner on site.”

26 P05 Geely – Daimlers new top shareholder-01

For Mr. Li, who founded his first business at the age of 19, taking pictures of tourists, his investment is strategic. It is highly likely he won’t just sit back passively or take up the role of an investor waiting for his annual dividend. He wants his car companies to cooperate with Daimler in the fields of electric cars, sources said. E-vehicles are a growth market in China, where the government is forcing producers to sell more electrically powered autos. Mr. Li said in a statement he feels car companies should cooperate to compete with newcomers, which challenge the incumbents with new technologies. “In order to succeed and seize the technology highland, one has to have friends, partners, and alliances and adapt a new way of thinking in terms of sharing and united strength,” he said. “And we have to act now. My investment in Daimler reflects this strategic vision.”

Reading between the lines, Mr. Li is making an offer Daimler may find hard to refuse. The Chinese businessman, who won himself the nickname “the crazy carmaker” after he cloned a Mercedes car badly in the 1990s, already tried last year to buy a stake in Daimler. But the two parties couldn’t agree on price and the Germans apparently told him he was free to buy shares on the open market. So he did, to the tune of €7.3 billion, based on last week’s stock price. It’s the largest Chinese investment in a foreign carmaker ever, according to Bloomberg.

The Chinese man made a name for himself in 2010 when he bought Volvo from Ford for $1.8 billion and then revived the iconic brand. Over the past seven years, the Swedish carmaker managed to pump up vehicle sales by more than 50 percent to 572,000 last year. Together with Geely, Volvo is building a new car brand, called Lynk & Co and it plans to focus on electric vehicles. Daimler’s boss, Mr. Zetsche, knows about these achievements and in an official reaction, the carmaker said it was pleased it could win a “long-term orientated shareholder” and praised Mr. Li “as an especially knowledgeable Chinese entrepreneur with clear vision for the future, with whom one can constructive discuss the change in the industry.”

26 p05 Daimler vs. Geely-01

Geely, for its part, said in a statement it did not plan to buy additional Daimler shares “for the time being.”  Mr. Li knows how sensitive Chinese investments in German companies are following a string of takeovers. He has already met with Daimler’s finance head, Bodo Uebber, and was scheduled to meet Mr. Zetsche on Monday and then an economic advisor to Chancellor Angela Merkel on Tuesday, sources said. The Chinese executive wants to encourage the German carmaker to cooperate with him.

Some German automotive experts backed Geely’s move, saying it could spur Daimler to expand its offering of electric cars. Ferdinand Dudenhöffer, head of the Center Automotive Research at the University Duisburg-Essen, said Mr. Li and Geely offered Daimler a partner to compete with the new entrants in the car industry, for instance Google’s Waymo and Apple, which are developing self-driving car technologies.

If that is true, Mr. Li could offer Daimler what Henry Ford and VW’s Ferdinand Piëch sometimes failed to offer their own car companies: how best to recognize the changes affecting the industry and how to respond.

Markus Fasse specializes in aviation and automobile industry news. Martin Murphy covers the steel, car and defense industries for Handelsblatt. Katharina Slodczyk is a finance reporter based in Frankfurt. Sha Hua is Handelsblatt’s China correspondent, based in Beijing. Robert Landgraf is Handelsblatt’s chief correspondent for the financial markets. Gilbert Kreijger is an editor with Handelsblatt Global. To contact the author: To contact the authors: fasse@handelsblatt.com, murphy@handelsblatt.com, slodczyk@handelsblatt.com, hua@handelsblatt.com, landgraf@handelsblatt.com, kreijger@handelsblatt.com

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