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Daimler floats plan to increase stake in China venture: sources

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A resilient Chinese business remains critical for Daimler to maintain its financial muscle and offset headwinds in a sluggish global auto market.

Beijing

DAIMLER AG has raised the prospect of boosting its stake in a joint venture with Chinese partner BAIC Motor Corp, according to people familiar with the discussions, as the luxury-car maker seeks to gain more control over its operations in the world's largest car market.

Daimler expressed an interest in increasing its holding to at least 65 per cent from 49 per cent, one of the people said, asking not to be identified as the deliberations are confidential. The discussions with state-owned BAIC are exploratory and the two carmakers may fail to reach an agreement, the people said.

A 16 per cent stake in the venture would be valued at between 2.3 billion euros (S$3.6 billion) and three billion euros, estimates Christian Ludwig, an analyst with Bankhaus Lampe.

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Daimler declined to comment on talks with BAIC, but said it is satisfied with the setup in China and its partnerships. Asked whether there are any early discussions about Daimler boosting its stake in BAIC, a representative for the Chinese company said: "there is no such thing," without elaborating. BAIC, he said, is happy with its current collaboration with Daimler.

The US-China trade war has made it more appealing for global carmakers to expand their foothold in the Asian nation. China eased the rules around automotive ventures this year, after decades of restricting foreign car companies to owning a minority stake with a local partner.

The market's expected contraction this year, its first in two decades, has also prompted foreign manufacturers to seek out more of the profits.

Daimler dropped 2.9 per cent to close at 50.45 euros in Frankfurt on Tuesday, taking its losses this year to 29 per cent.

The company last year produced 430,000 vehicles through its venture with BAIC, accounting for some 70 per cent of sales in the country. The manufacturer also makes electric cars under the Denza brand through a venture with BYD Co, but sales have been limited.

Sales of Mercedes-Benz cars in China have jumped 13 per cent this year through November to nearly 551,00 vehicles, compared with almost flat demand for the brand globally.

From 2022, global car companies will be allowed to hold majority stakes in passenger vehicle joint ventures, and the requirement to have a partner has already been lifted for electric car businesses.

In October, BMW AG became the first company to take advantage of this rule change and announced it would own a majority stake in its venture with Brilliance China Automotive Holding Ltd. BMW would invest 3.6 billion euros to take its stake in the venture to 75 per cent from 50 per cent.

A resilient Chinese business remains critical for Daimler to maintain its financial muscle and offset headwinds in a sluggish global auto market.

Retaliatory import duties in China for goods from the US are weighing on earnings as Mercedes-Benz builds most of its SUVs in Alabama. The company has hit road bumps this year with two profit warnings that have dented investor confidence. 

While the tit-for-tat trade war is between the US and China, Daimler and BMW are among the biggest losers because they import luxury vehicles into China after building them in the US.

On Monday, Daimler shares surged after President Donald Trump tweeted that China would reduce and remove the tariffs, which would hand the German companies a relief. China didn't confirm this and Mr Trump's advisers were left scrambling on how to explain the tweet. BLOOMBERG