The truth behind Daimler's withdrawal of foreign investment

After five years, BAIC Daimler Benz has become a thing of the past, failing to achieve its initial goal of "technology monetization." With Beijing Automotive's statement, external speculation, suspicion, regret, and disappointment regarding the negotiations between the two joint venture partners are now rendered meaningless.

On the one hand, according to the "Statement on the Relevant Situation of BAIC Daimler Benz" released by BAIC Group Co., Ltd., the official statement claims that the change in BAIC Daimler Benz's equity structure will not affect the long-term partnership between BAIC Group and Daimler, nor will it affect the technical cooperation between BAIC Group, Beijing Automotive, and Daimler. On the other hand, Daimler also stated that MBtech is no longer a subsidiary of Daimler, and its activities are unrelated to Daimler and Mercedes-Benz.

Although it seems to outsiders that this statement is clearly a clarification made by Beijing Automotive to quell excessive speculation, regardless of the actual impact on Beijing Automotive, BAIC's independent development will face more difficulties in its quest for survival, regardless of BAIC Daimler Benz's situation.

It was all destiny.

Indeed, in the equity changes of BAIC Daimler Benz several days ago, due to the complete withdrawal of the original foreign investor MBtech, followed by the departure of all foreign executives, the future of BAIC Daimler Benz (Beijing BAIC Daimler Benz Automotive Technology Center Co., Ltd.), a joint venture technology company that has just celebrated its fifth anniversary, is highly uncertain, causing everyone to worry about BAIC's newly revitalized independent development path.

However, looking back at the establishment of BAIC Daimler Benz and the actual situation of technology monetization over the past five years, we are more inclined to believe that all this is more like a reasonable end that was not rehearsed but was already imminent.

On August 18, 2015, Beijing BAIC Daimler Benz Automotive Technology Center Co., Ltd. (BAIC Daimler Benz) was officially established as a joint venture between Beijing Automotive Co., Ltd. and MBtech Group GmbH & Co. KGaA (referred to as "MBtech," at that time Daimler AG held 35% of the company's shares). Beijing Automotive held 51% and MBtech held 49%.

Although on the surface, BAIC Daimler Benz, with its overseas background, was no different from other automotive-related joint ventures at the time, from its inception, BAIC Daimler Benz was only regarded by BAIC as a technology provider for the development of its own brand, and it was claimed to be the only joint venture technology center in China that served only independent brands.

Although over the past five years, due to market constraints and the poor sales performance of BAIC's own brand, BAIC Daimler Benz's promise to "develop a new vehicle model for BAIC Group each year" has not been fulfilled, the emergence of BAIC Daimler Benz still helped BAIC absorb some technology from Mercedes-Benz, and persuaded Mercedes-Benz to provide outdated platform technology to BAIC for learning and research.

Many people may think that BAIC Daimler Benz's sudden withdrawal of investment after only five years of joint venture, regardless of how intriguing the interests involved are, the repeated failures in product development are undoubtedly one of the important reasons for the two joint venture partners to reach a consensus.

However, as MBtech gradually escaped Daimler AG's control, the significance of BAIC Daimler Benz's existence has deviated from its initial purpose. As mentioned earlier, at the beginning of the joint venture, MBtech was not a wholly-owned subsidiary of Daimler AG. Its actual controller is AKKA, a French engineering technology consulting and R&D service provider holding 65% of the shares.

This means that BAIC Daimler Benz had to consider this relationship when introducing technology. By 2018, with Daimler AG's 35% stake in MBtech transferred to AKKA, BAIC Daimler Benz, which had completely severed ties with Daimler AG, seemed to have no need for a joint venture for BAIC, which coveted Mercedes-Benz technology, except for continuing to execute the relevant cooperation agreements signed between the two parties.

Therefore, looking back now, Daimler AG and BAIC's attitude of mutual non-interference regarding BAIC Daimler Benz's separation from foreign investment is actually reasonable. Given that BAIC Daimler Benz has already severed ties with Daimler AG, speculation about the equity game between BAIC and Daimler behind BAIC Daimler Benz is unfounded. However, this makes it a pressing issue to determine how BAIC's independent development will cope with increasingly fierce market competition, whether it is through brand rebuilding or focusing on new energy vehicles.

Mysterious confidence, or feigned composure?

To be fair, compared to emerging brands such as Roewe, which also pinned their hopes on the technology of overseas high-end models, the establishment of BAIC Daimler Benz did raise the starting point of BAIC's independent development. Subsequently, the BJ90 (Parameter | Inquiry), based on the old Mercedes-Benz GL-Class, did refresh the price height of independent models with a price close to one million. In addition, with the platform and core technologies of the front and rear axles of the Mercedes-Benz V212 generation E-Class, the resulting BAIC Senbao D80 became one of the few mid-to-high-end independent sedans at the time.

Initially, the appearance of these models seemed to verify that BAIC had achieved a certain level of transformation of Mercedes-Benz technology. However, in essence, the technology obtained through BAIC Daimler Benz was merely another naked manifestation of BAIC's practice of taking what it could get. Therefore, after receiving orders from government departments, the BJ90, which matched the same powertrain as the old GL but made no significant adjustments except for the design, and the poorly integrated Senbao D80, immediately became neglected marginal models in the real civilian market.

The even more cruel reality is that the rapid development of new energy vehicles has made this approach of high-end breakthroughs in the fuel vehicle era seem unwise. In other words, the existence of BAIC Daimler Benz has become less important from this moment on. As for the plan to integrate Saab's outdated technology platform, it has become a "chicken rib" with the arrival of the "great unification" era of Beijing's independent development.

On October 15, 2019, after reorganizing its BAIC New Energy and Beijing Automotive businesses, BAIC Group officially launched the BAIC independent passenger car brand BEIJING, and the Senbao brand was strategically abandoned. In addition, the Weiwang brand has long ceased production and sales in BAIC's independent development, and the BJ off-road vehicle series business has also become independent.

To this day, although since the birth of the BEIJING X7, various signs have not revealed BAIC's determination to completely abandon fuel vehicles, in fact, the plan to abandon the fuel vehicle market and fully bet on new energy vehicles was determined during the "Xu He Yi" era. Moreover, from the actual market sales and revenue, such a desperate gamble has a strong inevitability.

In the market's major shake-up, the decline of BAIC's independent sector has been evident since last year. According to the 2019 performance report, Beijing brand's gross profit decreased from -3.516 billion yuan in 2018 to -4.728 billion yuan in 2019. Such a loss-making situation, without the BEIJING X7 achieving a certain sales advantage, is clearly impossible to offset.

From January to September this year, the cumulative sales of the entire BEIJING brand and Beijing Off-Road reached 52,603 vehicles, with average monthly sales of less than 6,000 vehicles. Whether due to the product vacuum period caused by brand renewal or the limited capacity of the hard-core off-road vehicle market, the current situation of BAIC's independent gasoline vehicles is undoubtedly a pain point deeply affected by the overall market environment.

From betting on the new energy strategy to expanding through the travel market to occupy a large market share, BAIC's independent development model has indeed shown a trend of focusing on new energy. Does this mean that without the protection of Mercedes-Benz technology, the future of BAIC's independent sector can rest easy?

Actually not. In 2020, with the saturation of demand in the shared travel sector and the efforts of car companies such as BYD and GAC New Energy, which have slightly better pure electric technology, BAIC's independent sector, lacking market reputation, has become quite passive.

Year-to-date cumulative sales have fallen by 78.6% to 21,086, exposing the shortcomings of BAIC's new energy products. Moreover, while traditional car companies like BYD and GAC are following the new car-making forces in making changes to channel settings, the outdated sales thinking in the terminal market is pushing away BAIC New Energy's potential consumer groups to its competitors.

In response, BAIC New Energy has launched the high-end brand ARCFOX and outsourced production to Magna, attempting to achieve this transformation. However, from brand establishment to the pre-sale stage of the first model αT, the long-term market tug-of-war has not yet shown any significant positive signs.

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Secondly, with the baton in Xu He'yi's hands passed to the current BAIC Group chairman, Jiang Deyi, who has never worked in the automotive industry, the gamble of the Beijing independent sector against the times will inevitably become more unpredictable.

In short, since BAIC Benz officially shed its joint venture halo, the argument of "technology cutoff" has been constantly surrounding this topic. Now, Daimler Group, the parent company of Mercedes-Benz, and Beijing Automobile have both given the clearest denial, concluding the matter. However, regardless of how natural the withdrawal of BAIC Benz is for both parties, BAIC's independent sector, while implementing a "Great Leap Forward", concerning the reshaping of the entire new energy industry chain, is clearly far from being complacent.