What to Know About Daimler in China After Geely's Big Investment

(Bloomberg) -- Billionaire Li Shufu becoming the largest shareholder of Daimler AG is poised to shake up the dynamics of the Chinese auto industry, where local brands use partnerships with Western manufacturers to gain technology and prestige.

Li's purchase of a stake of almost 10 percent in the owner of Mercedes-Benz boosts the prospects of his car company Zhejiang Geely Holding Group Co., while raising questions for electric-vehicle maker BYD Co., a Chinese rival that's backed by Warren Buffett. As Li tries to bring Geely closer to Daimler, the future of BYD's partnership with Daimler may be up in the air, according to Bloomberg Intelligence.

Chinese manufacturers are teaming up with European peers as they jostle for position in the fast-growing market for electric vehicles. Passenger EVs will make up 4 percent of China's new car sales by 2021, reaching more than 1 million units, and adding in commercial vehicles such as buses would increase the proportion further, according to Bloomberg New Energy Finance.

By 2040, as many as 176 million cars -- or 46 percent of all automobiles on the road in China -- will be electric vehicles, BNEF predicts. Daimler, planning to make 10 battery-powered models by 2022, projects sales of plug-in hybrid and electric cars to make up as much as 25 percent of total deliveries by 2025.

Here's how Li's acquisition affects the key players in China's car industry:

Geely Gets a Piece of a Global Brand

Geely gets connected to a massive global brand as demand shifts toward electric vehicles and self-driving automobiles. Li wants Geely and Daimler to cooperate in the areas of battery-powered cars, online services, trip-sharing, and digital technologies. The pact opens up possibilities such as producing a new-energy vehicle in China, CICC analyst Wei Feng said in a note to clients. Geely also owns Volvo Cars, a Mercedes-Benz rival based in Sweden, which has potential synergies with Daimler, said Wei. Still, with Daimler already having a broad footprint in China, it may take time for its management to regard Geely as a long-term strategic partner and for the companies to find a common strategy, Wei said.

Daimler Ditches BYD?

Geely getting closer to Daimler may result in the German company severing its ties with EV maker BYD, said Steve Man, an analyst at Bloomberg Intelligence. Daimler and BYD have worked together since early this decade, yet the venture hasn't resulted in anything meaningful, he said. Sanford C. Bernstein analysts Max Warburton and Cyprian Yonge agreed, saying in a note it would be easier for Geely to detach Daimler from BYD than from its other local partner, BAIC Motor Corp. BYD said it has a pleasant relationship with Daimler and the companies have a long-term development plan for their joint brand Denza. In September, the company said it planned to expand its cooperation with Daimler. Daimler declined to comment.

Decades-Old JV With BAIC Stays on Track

BAIC was quick to reassure investors that its three-decade partnership with Daimler remains on track. Just two days after news broke about Li's stake purchase, BAIC and Daimler announced plans for a new $1.9 billion factory in China for Mercedes-Benz cars. And with BAIC enjoying direct government backing, Geely's move isn't likely to undermine the long-standing BAIC-Daimler pact, the Bernstein analysts said. Employing over 11,000 staff, the Daimler and BAIC venture builds C-Class, E-Class, GLA, and GLC vehicles. Last year, Daimler and BAIC announced a 5 billion yuan ($793 million) joint investment for battery EVs. The venture's electric EQ crossover is scheduled to be rolled out in the next couple of years.

Great Wall Seals Deal With BMW

Geely rival Great Wall Motor Co., a leading maker of sport-utility vehicles in China, is set to see competition intensify as yet another Chinese competitor deepens ties with European expertise. Great Wall itself struck a deal with BMW AG late last week to start making Mini city cars in China.

--With assistance from Elisabeth Behrmann and Adrian Leung

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net, Ma Jie in Tokyo at jma124@bloomberg.net.

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Ville Heiskanen

©2018 Bloomberg L.P.

With assistance from Tian Ying, Ma Jie