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Daimler in talks to make electric Smart cars in China

Beijing

DAIMLER AG is planning to manufacture battery-powered Smart cars in China with a local partner, according to people with direct knowledge of the matter, in a push to boost sales of the tiny-car brand in cities around the world where parking and emissions are becoming a challenge.

The German luxury carmaker is in talks to set up a new joint venture with Beijing Electric Vehicle Co, a unit of its long-time Chinese partner Beijing Automotive Group Co, to make Smart EVs, said the people, who asked not to be identified because the deliberations are private. Daimler has been making Mercedes-Benz cars for the mainland with the state-owned group since 2005.

A spokeswoman for Daimler in China and a representative for Beijing Electric Vehicle, locally known as BJEV, declined to comment. The German firm bought close to a 4 per cent stake in BJEV in March, a cooperation it says will allow it to "further deepen its understanding of Chinese consumers' needs".

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The Stuttgart-based company, which in May announced changes to the top management at the Smart division in a strategy shift toward electrification, is targeting the world's largest EV market for sales of the small two-seater. Smart, which has racked up losses since its launch in 1998, is seeking to tap young, urban consumers in China who would potentially buy it for parking convenience.

Daimler, which has been importing Smart cars into China, hasn't detailed sales of the brand in the mainland. Deliveries of the brand globally slumped almost 7 per cent last year to 135,025 vehicles, according to the company. Smart's main contribution to Daimler has been to help offset the emissions of high-margin gas guzzlers like the Mercedes S-Class sedan and AMG GT sports car. Plans are afoot to abandon combustion engines for electric models starting in 2020.

It isn't immediately clear how big a stake Daimler would want in the joint venture. China requires foreign manufacturers to partner local firms, with a 50 per cent cap on ownership in the venture. But lately, policymakers have been relaxing the limits - overseas EV makers can set up units on their own starting this year, while the restrictions on passenger vehicles will end in 2022.

In its fight to cap carbon emissions and improve urban air quality, China has emerged as the world's No 1 market for EVs and is determined to lead the trend in electrification. The Asian country has set up a target to increase sales of new energy vehicles 10-fold to seven million units annually by 2025, including plug-in hybrids, pure electric, and fuel cell vehicles.

While companies such as BMW AG are bolstering their presence in China to escape a tariff war between the US and China, Daimler's joint venture is primarily meant to cater to the local market and stem the decline in sales of the Smart brand. Tesla Inc secured a preliminary deal to build a factory near Shanghai last month just days after China's retaliation against President Donald Trump's tariff hikes made imports more expensive.

Besides the BAIC Group, Daimler has also teamed up with Warren Buffett-backed BYD Co in China to make pure electric cars under the nameplate Denza. Daimler said in March that it will continue to invest in Denza product development.

BJEV is also forming two joint ventures with Magna International Inc for engineering and manufacturing EVs in China. BJEV is planning to list on a mainland stock exchange and is scheduled to start trading soon. BLOOMBERG