The founder of China’s Zhejiang Geely Group Holding Company (HKG: 0175); the owner of Volvo Cars AB, has accumulated a 9.7% stake in Daimler AG (ETR: DAI) the parent of Mercedes Benz.
Li Shufu has purchased $9 billion (€7.3 billion) worth of Daimler stock through Geely Group, The Star reported. That is the biggest investment outside the People’s Republic for a Chinese automaker.
The obvious goal here is to build an alliance to counter global auto giants such as Toyota Motors (NYSE: TM) and Volkswagen AG (OTC: VLKAY) which have far greater resources than Geely and Daimler. The plan is to use the synergies of resources to build more technologically advanced vehicles and tap new markets.
Why Daimler Needs Geely
There are some potential synergies here which can increase the size and scope of each company’s business.
Geely can provide Daimler with more access to the world’s largest auto market China. Daimler can provide Geely with highly-advanced technology and access to German manufacturing excellence.
Daimler is a leader in some aspects of automotive technology including self-driving vehicles, electric vehicles, and hydrogen fuel cells. Geely certainly needs that technology to ward off aggressive challenges from General Motors (NYSE: GM), Volkswagen, and Toyota on its home turf.
There’s also the name brand recognition, Geely is virtually unknown outside China, Mercedes Benz is recognized everywhere. Geely’s one European brand, Volvo is a niche player which lacks the cachet and coolness factor of Mercedes. In America, Volvo has the reputation of a sensible car that schoolteachers drive, while Mercedes is viewed as a vehicle for cool rich people.
Geely Growing into Major Auto Brand
The Mercedes brand can help Geely expand its market and attract more luxury buyers. Daimler is also a major player in trucks, it has sold electric delivery trucks to UPS (NYSE: UPS) and tested a self-driving semitractor in the United States. Daimler owns a major American semi builder; Freightliner.
Daimler is only the latest company that Li is buying into, he also controls a famous British luxury car brand Lotus Cars Limited. Geely also has control of Volvo AB, the world’s second-largest truck maker.
It looks as if Geely is well on the way to becoming a major player in the global auto industry. The next logical move for Li will be to buy into a major American automaker such as Ford (NYSE: F) or General Motors.