Geely Purchase Of Mercedes Stake Prompts Hopes, Fears.
Could It Delay The Expected Truck Float?
“Geely won’t be the last to make a move on German auto assets”
Investors wondered how to figure out the significance of Zhejiang Geely Holding Group’s purchase for around $9 billion of a close to 10 per cent stake in Daimler and worried that it might interfere with the expected flotation of the trucks subsidiary.
They also believed this would not be the last Chinese foray into the European industry. The last big Chinese move into Europe was Dongfeng’s purchase of 14 per cent in PSA Group when the French state bought the same amount to bail out the company.
Investment researcher Evercore ISI said spending this big meant it was more than just an investment and expected cooperation deals between Geely and Mercedes.
Geely also wants Mercedes expertise on electric cars and autonomous ones.
Geely owns Volvo Cars and 8.2 per cent of Volvo Trucks. It also owns black taxi maker London Electric Vehicle Company, nearly half of Malaysia’s Proton and a controlling interest in British sports car maker Lotus. Geely is expected to launch its own brand Lynck & Co in Europe next year.
“Geely could seek a strategic/component-sharing/purchasing alliance between Volvo Cars and Mercedes, however this clearly this will not be happening overnight,” Evercore ISI analyst Arndt Ellinghorst said.
Ellinghorst wondered if Geely would seek a seat on Daimler’s board, which would as a competitor potentially be a problem when confidential matters were discussed. Volvo Cars needs scale and a partnership with Mercedes Cars would assure its future, he said.
Bernstein Research analyst Max Warburton had questions.
“How does this fit with Volvo Cars and the stake in Volvo Trucks? Will this pose anti-trust issues? Is the plan to get Mercedes cars and Volvo cars to work together? Does this change Daimler’s joint venture plans in China in the medium term? Will this derail the Daimler (truck) de-merger”, Warburton said.
“It’s not clear what Geely wants and how it’s going to work, but we view this move as part of a broader Chinese move to gain involvement in the European automotive industry,” he said.
“China wants a payback after spending a decade gifting the European auto industry super-normal growth and profits. Now it wants more direct access to technology, brands and profits. Geely won’t be the last to make a move on German auto assets, in our view. We’re going to have to get used to the automotive world continuing to spin ever faster,” said Warburton.
More questions came from investment researcher Jefferies.
“An investment which raises a number of interesting questions about 1) potential strategic influence as Daimler considers some corporate restructuring (trucks) and 2) China’s global auto investment strategy as funding sources for the investment are unclear at this stage and the Chinese auto industry could do with some rationalization,” said Jefferies analyst Philippe Houchois.
Houchois also pointed out that the German government would be expected to be sitting up and listening.
“We also note that Daimler is one of few large manufacturers without a core influential shareholder, like GM. However we would expect the German government to have an interest in any development,” Houchois said.