Daimler’s Smart China Geely Deal Mainly Wins Plaudits.
“For Daimler, it reinvents the Smart brand – a brand that has had limited success as an urban small car niche player – as an all-electric specialist.”
Daimler’s agreement to sell half off its Smart minicar subsidiary to Zhejiang Geely Holding Group of China won applause although there were doubts expressed whether this long-term loss-maker could be revived.
The up and coming Chinese company Geely can reap the benefits of working with a German premium brand like Mercedes, while Daimler has shared control of a serial loss-maker. Financial details were not revealed.
The Smart subsidiary has been a financial black-hole for Daimler ever since it was launched in 1998. Its latest iteration as an all-electric Citycar should have proven a lifeline, but sales still remained stagnant.
Investment researcher Evercore ISI estimated Smart loses between 500 million and 700 million euros a year ($585 million and $820 million).
Smart will build all future models in China with global sales beginning in 2022. The new Smarts will be a bigger than the current minicar.
Dave Leggett, Automotive Editor at GlobalData, a leading data and analytics company, sees benefits all round.
“This deal makes a lot of sense for both carmakers, yielding benefits to both as electrification gathers pace in the global auto industry. China’s circa 30 million unit annual market is shaping up to be at the epi-centre of this transformation over the next decade, Leggett said.
“For Daimler, it reinvents the Smart brand – a brand that has had limited success as an urban small car niche player – as an all-electric specialist. Moreover, it shifts the manufacturing base for the brand to China from 2022. That in itself would be a good move given the importance of the Chinese market for future sales of EVs, but it has also selected a well-established local partner for the venture, something that will be essential in securing a good manufacturing base and supply chain,” Leggett said.
Geely gets to work with the Germans
“Geely gets the benefits of working closely with a German premium maker in the venture – both in joint design and development of future electric Smart models themselves and in the delivery of new mobility services to future customers via the Smart brand,” Leggett said.
Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) at the University of Duisburg-Essen, managed to find 3 winners from the deal – Daimler, Geely and Smart itself.
“Smart has a last chance to establish itself. With Geely Smart, the China market is wide open. This year, well over 2.3 million new electric vehicles will be sold in China. For 2021, when Smart starts up in China, electric vehicle sales will reach 3 million vehicles a year. Smart has the Chance to score in the world’s largest battery electric market,” Dudenhoeffer said.
“The second winner is Geely. Li Shufu, Geely’s chairman, is an outstanding strategist. For Daimler, working with Geely could be very successful. Geely would have a chance with Daimler to become a real counterweight to the greats of the world – VW and Toyota,” Dudenhoeffer said.
Evercore ISI, which had said Daimler should shut down the loss-making company, was not convinced success was guaranteed.
“We said earlier that Daimler would be well advised to discontinue the brand entirely. But if the brand can successfully transition into the subcompact segment it may be able to price accordingly and turn the business around but for now we remain sceptical,” Evercore ISI analyst Arndt Ellinghorst said.
S&P Global Ratings said the deal will help Geely enhance its model range and competitive position.
“The Smart electric models will expand Zhejiang Geely Holding’s product portfolio, which consists of brands such as Geely Auto, Lynk & Co, Volvo, Proton, and Lotus. They will also strengthen the company’s competitiveness in the new energy vehicle (electric) market, which will account for the majority of Zhejiang Geely Holding’s sales after 2022,” S&P said.
GlobalData’s Leggett warned Daimler’s plans with Geely may clash with its BMW joint venture.
Eyes Peeled At Mercedes, BMW
“However, I suspect the deepening relationship between Daimler and Geely will be attracting some scrutiny from BMW. Daimler and BMW have created a joint venture for future mobility services and lines could increasingly get blurred in the converging Connectivity Autonomous Shared Electric megatrends space for future urban mobility. It’s certainly a very dynamic business space, as growing numbers of collaborations between companies indicate,” Leggett said.
Daimler has never disclosed the extent of Smart’s losses, but reports just before the financial crisis in 2008 suggested it was losing as much as 4,000 euros ($4,680) per car. To cut costs, Daimler partnered with Renault to make the Smart and Twingo minicar together. Last year Smart sold just under 100,000 cars in Europe, according to carsalesbase.com. Sales peaked at about 145,000 in 2004.