A few days ago, domestic media reported that Daimler intends to restart negotiations with BAIC on increasing its stake in Beijing Benz. Regarding this news, although Daimler and BAIC Group did not respond positively, combined with previous rumors and China’s current policy on foreign equity ratios, the industry believes that Daimler’s increase in Beijing Benz shares will largely become a reality. This also indicates that Beijing Benz may follow the example of “BMW Brilliance” to become the second foreign-owned luxury car company.
Losses in the second quarter increase, Daimler wants to seek external sources of income
This year’s new crown epidemic has caused severe damage to the global auto industry, which is reflected in the company’s financial report by a sharp decline in revenue and net profit. According to data released by Daimler, a total of 540,000 vehicles were sold in the second quarter of this year, a decrease of 34% from the same period last year. Revenue was 30.2 billion euros, down 29% year-on-year, and EBIT was negative 1.682 billion euros. The adjusted EBIT was negative 708 million euros, and a net loss of 1.906 billion euros (a net loss of 1.242 billion euros in the same period in 2019).
Based on the status quo of expanding losses in the second quarter, Daimler had to adopt internal methods to increase cash flow reserves. According to foreign media reports, the 51-year-old Daimler CEO Kang Linsong is leading the group to implement a restructuring plan. The planned layoffs are expanded from 10,000 to 15,000 to significantly reduce costs.
Daimler is now in a dilemma. On the one hand, it is the increasing amount of losses. On the other hand, it is the increased investment necessary for the transformation of enterprises to electrification and intelligence. The intensification of the contradiction between the two will make Daimler inward. While reducing costs and reducing expenditures, we have to seek out maximization of benefits.
“Profit Cow” Beijing Benz becomes Daimler’s best choice
When Daimler had to take cost-cutting and cost-cutting measures in the face of continued net profit losses, Mercedes-Benz’s performance in the Chinese luxury car market has become increasingly gratifying. Data show that Mercedes-Benz’s global sales fell 19% to 870,000 units in the first half of this year, but the brand’s sales in the Chinese market in the second quarter hit a new high during the same period. According to insurance data from the China Insurance Regulatory Commission, Mercedes-Benz’s growth rate in the Chinese market in the first half of the year not only outperformed the market, but also ranked first among luxury brands with a cumulative sales of 350,000 units, once again becoming the sales champion of the Chinese luxury car market.
In recent years, the joint venture company Beijing Benz has become the “cow” that conveys profits to Beijing Auto. According to the 2019 performance report released by Beijing Auto, BAIC’s operating income was 174.63 billion yuan, and Beijing Benz contributed 155.12 billion yuan, accounting for more than 88.8%. In the first half of this year, based on the steady trend of Mercedes-Benz in the Chinese market, the revenue contribution rate of the joint venture Beijing Benz increased again. According to the 2020 semi-annual report released by Beijing Auto, BAIC achieved revenue of 77.854 billion yuan in the first half of this year, down 11.6% year-on-year, but Beijing Benz’s related revenue reached 74.92 billion yuan, accounting for 96.2% of the overall revenue.
The increase in revenue contribution of Beijing Benz, for another shareholder Daimler, is a further upgrade of allure.
Daimler will never forget to increase its stake in Beijing Benz
Public information shows that Beijing Benz, established in 2005, is a joint venture established by Beijing Automotive Co., Ltd., Daimler AG and Daimler Greater China Investment Co., Ltd. In terms of equity structure, Beijing Automotive holds 51 shares. %, Daimler holds 49%.
According to industry rumors, Daimler was unwilling to this stock earlier than the structure. In 2018, when the BMW Group first announced that it would increase its shareholding in the joint venture BMW Brilliance to 75%, there were media reports that Daimler intended to increase its shareholding in Beijing Benz, its joint venture in China, from 49% it held at that time to 65%. However, both BAIC and Daimler refuted the rumors on the grounds that they were “satisfied with the current cooperative relationship.”
At the end of 2019, industry rumors Daimler is expected to increase its stake in Beijing Benz to 75%. Until not long ago, rumors about Daimler’s intention to increase its stake in Beijing Benz shares once again raged. The industry believes that Daimler has always been obsessed with the increase in its stake in Beijing Benz, and is looking forward to “reverberation.”
The battle for equity in joint venture brands has been a foregone conclusion since luxury brands
The play of increasing the share ratio of joint venture auto companies by foreign brands starts with the liberalization of foreign share ratio restrictions issued by the National Development and Reform Commission and the Ministry of Commerce in 2018. According to the “Special Administrative Measures for Foreign Investment Access (Negative List) (2018 Edition)”, starting from July 28, 2018, restrictions on foreign ownership in the manufacturing of special vehicles and new energy vehicles will be lifted, and foreign investment in commercial vehicles will be lifted in 2020. Shareholding restrictions, the elimination of passenger car foreign shareholding restrictions in 2022, and the restriction of no more than two joint ventures.
As soon as the news came out, the BMW Group first responded. In October 2018, the BMW Group stated in its official statement that it plans to increase the shares of the joint venture BMW Brilliance from 50% to 75%. The shareholders of the joint venture will complete the equity change in 2022. The industry believes that BMW Brilliance has become the first “crab-eater” after the liberalization of foreign shareholding in China’s vehicle manufacturing industry. The main reason is that BMW Brilliance’s Chinese shareholder, Brilliance Auto’s independent business has performed poorly in recent years, and its core technology is restricted by BMW. Groups, it is difficult to have the same voice as foreign shareholders in joint ventures. Based on this analysis, BAIC Group will inevitably face the same problem in the joint venture Beijing Benz.
In the first half of this year, BAIC Motor’s revenue and net profit have declined to varying degrees. As mentioned earlier, BAIC Motor’s revenue and profit sources at this stage are almost entirely dependent on Beijing Benz. In the first half of the year, the related revenue of Beijing brand passenger vehicles was only 2.934 billion yuan, down 71.5% year-on-year, and gross profit was negative 1.834 billion yuan.
If Daimler’s increased stake in Beijing Benz becomes a reality, Beijing Benz will become the second traditional vehicle company controlled by foreign capital. From BMW Brilliance to the rumored Beijing Benz, why is the drama of foreign investment in increasing equity in joint ventures repeatedly performed in luxury brands? In this regard, the Gasgoo Automotive Research Institute pointed out that luxury brands generally have higher profits. Coupled with the advent of the era of competition in the Chinese auto market, consumers have strong demand for increased purchases and luxury brands have entered the market dividend period. This broad market prospect Large luxury brands are all opportunities that cannot be missed.
In fact, in 2018, following the announcement of the National Development and Reform Commission to take the lead in lifting the restrictions on foreign shareholding in the manufacturing of special vehicles and new energy vehicles, a number of foreign new energy vehicle projects tried to seize this opportunity. The representative is Tesla. In 2019, Tesla built a super factory in Lingang, Shanghai in just one year and put it into use that year. At the beginning of this year, with the mass production and delivery of the domestic Tesla model 3, Tesla not only ushered in a broad market prospect in China, but also triggered a catfish effect in the domestic pure electric vehicle market. The original order of this market segment was due to Tesla’s domestic production has changed again.
According to the plan, China will abolish the restriction on the foreign shareholding ratio of passenger cars in 2022. At that time, domestic joint ventures may start a new round of equity disputes from luxury brands, which is expected to be followed by a reshaping of the joint venture brand market structure. . As an industry insider said, the snipe-clam battle between state-owned and foreign capital in 2022 over the equity issue of joint ventures will redefine the pattern of China’s auto market in the future.