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Abu Dhabi, UAEMonday 25 June 2018

Geely's $9bn stake in Daimler marks China's push into Europe auto arena

Cooperation with German motor manufacturer on areas such as new-energy vehicles and on-line services is a core issue, Chinese car maker says

Dieter Zetsche, chief executive of Daimler, at the Robert Bosch IoT conference in Berlin, Germany. Krisztian Bocsi/Bloomberg
Dieter Zetsche, chief executive of Daimler, at the Robert Bosch IoT conference in Berlin, Germany. Krisztian Bocsi/Bloomberg

The car industry is witnessing one of its biggest disruptions since Karl Benz assembled the first automobile more than a century ago, and Li Shufu wants to play an active part in the revolution.

The founder and chairman of Zhejiang Geely has become the top shareholder in Daimler, the German company that traces its roots to Benz, and inherits a storied legacy with inventions such as the world’s first diesel car. The €7.3 billion (Dh33.04bn) stake, disclosed on Friday, represents the biggest investment by a Chinese company in an overseas car maker - and one right in the nerve centres of the global automotive world.

The manoeuvre by the photographer-turned self-made billionaire comes at a time when battery-powered vehicles and self-driving automobiles are poised to herald a new era. Technology companies like Google and Apple with vast financial resources are vying for a role in the world of metal bending for the first time. To survive, traditional manufacturers can no longer go it alone, Mr Li said.

"Competitors that are challenging the global car industry in the 21st century technologically are not part of the automotive industry today,” Mr Li said, according to Bloomberg. “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.”

Geely's founder and chairman, Li Shufu.Hannibal Hanschke/Reuters
Geely's founder and chairman, Li Shufu.Hannibal Hanschke/Reuters

Mr Li amassed a 9.7 per cent holding in Stuttgart-based Daimler, whose CEO is veteran car industry stalwart Dieter Zetsche, through Geely Group, a company owned by the 54-year-old and managed by his car maker.

Daimler and other German car makers have been investing intensely in the area to stay ahead of tightening regulations and maintain their position as the marketplace moves on from combustion engines. Cooperation with Daimler, on areas such as new-energy vehicles and on-line services, is a core issue, Geely told Bloomberg News citing the chairman, in response to questions on the investment.

Mr Li’s closely held Zhejiang Geely Holding Group already owns Volvo Cars and last year it took an almost $4bn stake in truck maker Volvo. Geely also owns London Taxi and controls British sports-car maker Lotus Cars.

China’s car market has already surpassed the US. It’s one area where local companies like Geely and Great Wall Motors are encouraged by the government to go overseas to secure key technologies and access to resources.

Chinese deal makers in other areas are under intense scrutiny following a debt-fuelled global acquisition spree. HNA Group, the conglomerate that owns stakes in Deutsche Bank and Hilton Worldwide., is unwinding its portfolio of assets. Last week, China’s government temporarily took over Anbang Insurance, whose buying binge including properties such as Manhattan’s Waldorf Astoria hotel has come to symbolise the overreach of the nation’s debt-laden conglomerates.

Mr Li, whose global empire has more than 70,000 employees, has no such troubles.

A surge in Chinese vehicle sales is poised to double profits at his Hong Kong-listed Geely Automobile. The company’s shares jumped as much as 8.8 per cent Monday, giving it a market value of about $30bn. The car maker had bank balances and cash of 20.8 billion yuan (Dh12.11bn) as of June, according to its most recent financial report.

That should help Mr Li plough money into the emerging world of battery-powered cars and new technologies. Geely, which is China’s largest private car maker by sales, doesn’t have any foreign motor manufacturer as its partner. Daimler’s Chinese partners include BAIC Motor and Warren Buffett-backed BYD, both of which compete with Geely.

On Sunday, BAIC said its venture with Daimler will invest more than 11.9bn yuan to build a new factory in China for Mercedes-Benz vehicles to meet growing demand. Shares of BAIC gained as much as 5 per cent and BYD rose as much as 4.2 per cent.

Geely financed the Daimler investment through a combination of debt, equity and financial instruments overseas and didn’t use domestic funds in China, Chief Financial Officer Li Donghui told CCTV.

“Bringing the Daimler technology pipeline closer to the Geely mobility ecosystem is the primary motivation for this investment,” said Bill Russo, founder and chief executive of Automobility, a strategy and investment advisory firm. Chinese car makers are “hungry for partners to help build capabilities to improve the competitiveness”, he said.

The purchase by Geely is a company decision and there is no need for Berlin to take action, a German government spokesman said on Sunday.

Chinese investors in German technology firms have tended to take a consensual approach, engaging in long consultation with stakeholders, but Mr Li quietly amassed his stake.

"The German government is aware of the acquisition of 9.7 per cent of Daimler shares by the Chinese firm Geely," said the government spokesman. "It is a company decision," Reuters reported.

"Due to the character of the investment as a minority stake, there is no need to act in terms of either competition rules or foreign investment rules."

Electric vehicles is the new battle ground in China, where the government is actively pushing for the eradication of fossil-fuel powered automobiles by giving new incentives. China is already the world’s biggest market for electric vehicles, and a region Daimler has targeted for growth.

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Read more:

Nissan to spend Dh34bn in push to crack China

China's Geely takes $3.3bn stake in truck maker Volvo

China enters electric vehicle battle with cut-price first launch

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Born in 1963 in Taizhou, Zhejiang province, Mr Li used the 100 yuan his father gave him to buy a camera and start a business by taking photographs of tourists, according to Bloomberg. He then sold handmade camera accessories and later founded Geely, which means "lucky" in Chinese, as a refrigerator parts supplier. Motorcycle production came later and Geely became China’s first private car maker in 1997.

With a net worth of $13.8bn according to the Bloomberg Billionaires Index, Mr Li’s biggest act until now was the acquisition of Volvo Cars in 2010. He allowed Volvo to remain independent and gradually built a shared platform to use some Volvo technology in Geely cars, said Yale Zhang, a Shanghai-based analyst with Automotive Foresight.

“He acted very carefully not to undercut the brand value of Volvo. The result is very good," he said. "Li will look for opportunities to expand his influence on Daimler but he will be very patient for such opportunities."

Mr Li is known for posting poems and musings on his personal website. In a 2009 piece, he wrote that without independent innovation, "it would be impossible to fly a five-star red flag over the Frankfurt motor show”.

Twelve years after draping a Chinese flag over the first automobile Geely brought to the annual car show under a banner that read "I am Geely", Mr Li has just planted a five-star red flag in the heartland of Europe’s car manufacturing.