DMLRY Mercedes Benz Group AG (PK)

By William Boston 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 24, 2019).

BERLIN -- State-owned Beijing Automotive Group Ltd. said it has acquired a small stake in joint-venture partner Daimler AG, boosting Chinese ownership of the German auto maker to around 15%.

The Chinese company said Tuesday that the acquisition of a 2.48% stake, with an option to raise it to 5%, would strengthen the two car makers' longstanding alliance in China known as Beijing Benz Automotive Group Co.

At the same time, the move could aggravate worries in Europe about Chinese penetration of core industries in the region. Chinese billionaire Li Shufu already owns 9.7% of Daimler through Zhejiang Geely Holding Group, which owns Swedish auto maker Volvo Cars.

"In our view this partnership is exemplary for the successful cooperation between a Chinese and German company," Beijing Automotive Chairman Heyi Xu said. "It can serve as a model for other companies from both countries."

Daimler's closer ties with China could also irritate the Trump administration, which is pressuring Beijing over trade issues, including increased market access. Daimler and other German auto makers have faced the prospect of higher U.S. tariffs, though the threat has abated in recent months.

Under rules adopted last year, Berlin can veto any acquisition by a non-European buyer of a more than 10% stake in a German company across sectors ranging from energy to telecommunications, technology, defense, finance, transportation and the media.

The government followed up in February by saying it would prepare legislation allowing it to take significant stakes in German companies to protect them from foreign takeovers.

Germany's global car makers, which also include Volkswagen AG and BMW AG, are among the country's flagship companies. But all have suffered lately amid slowing global and domestic demand, the reputational fallout from a four-year-old diesel emission scandal, and high costs associated with the industry's shift to electric vehicles.

Daimler Chief Executive Ola Källenius welcomed the investment by Beijing Automotive.

"This step solidifies our successful partnership," he said. "The Chinese market is and remains a decisive pillar of our success -- not only in terms of revenue but also for our development and production."

With the investment, Beijing Automotive becomes Daimler's third-largest individual shareholder after Mr. Li's Geely Holding Group and the Kuwaiti Investment Authority, which holds a 6.8% stake.

Daimler shares rose 4.9% to EUR48.05 on Tuesday.

Daimler unsettled markets about two weeks ago with its second profit warning in a month, blaming higher-than-expected costs related to a recall of Takata air bags and proceedings related to its diesel vehicles.

The Stuttgart-based auto maker also reported a EUR3.1 billion ($3.48 billion) charge for the second quarter, leading to a quarterly loss before interest and taxes of EUR1.6 billion. Its full second-quarter results are due out Wednesday.

BAIC, with annual revenue of around EUR62 billion, holds a 51% stake in the Beijing Benz venture, while Daimler holds the remaining shares. It acquired the 2.48% stake in Daimler through its investment company, Investment Global Co.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

July 24, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.