AutoBeta(AutoBeta.net)03/20 Report--

Negotiations with BAIC have been largely completed, and Mercedes-Benz's multi-year increase in Beijing Mercedes-Benz may be settled by the end of this year, according to the Financial Associated Press, citing people familiar with the matter. In this regard, Mercedes-Benz China and BAIC said they had not heard the news, while BAIC insiders told the Financial Associated Press that such information should be available only to a small number of senior executives of the group.

Data show that Beijing Mercedes-Benz is a joint venture between Mercedes-Benz Group and BAIC on August 8, 2005, headquartered in Beijing Economic and technological Development Zone. According to Tianyan check, Beijing Automobile Co., Ltd., a listed company of BAIC, holds 51% of the shares, while Mercedes-Benz Greater China Investment Company and Mercedes-Benz Group together own 49%.

How important is Beijing Mercedes-Benz to BAIC? It is understood that Beijing Automobile Co., Ltd. owns Beijing Automobile, Beijing Mercedes-Benz, Beijing Hyundai, and Fujian Mercedes-Benz, of which more than 95% of Beijing Automobile's revenue comes from Beijing Mercedes-Benz, which proves the importance of Beijing Mercedes-Benz to BAIC.

According to an announcement issued by Beijing Automobile on March 11, Beijing Automobile earned 22.809 billion euros in 2021, while Beijing Mercedes-Benz earned 21.288 billion euros, accounting for about 93 percent of Beijing Automobile's total revenue. The profit of the former from continuing business after tax is 1.868 billion yuan, while that of the latter is 3.205 billion yuan. This means that excluding the profits of Beijing Mercedes-Benz, the loss of Beijing Automotive's other businesses is 1.337 billion yuan.

With the exception of Beijing Mercedes-Benz, the performance of other sectors fell short of expectations. Figures show that Beijing Mercedes-Benz sold 561000 vehicles in 2021, Beijing Hyundai 382000, "BEIJING Beijing" 64800 and Fujian Mercedes-Benz 37200. Take Beijing Hyundai as an example, the net loss after tax in Beijing Hyundai is 4.995 billion yuan in 2021 and 6.284 billion yuan in 2020. The situation of BAIC Langu, a new energy vehicle segment owned by Beijing Automobile, is also not optimistic. At the end of January this year, BAIC Blue Valley issued an annual pre-loss announcement, which estimated that the net loss attributed to shareholders of the listed company in 2021 would be 48-5.3 billion yuan, due to the company's production and sales volume falling short of expectations, increased marketing investment for the ARCFOX polar fox brand, and increased research and development expenses.

Beijing Mercedes-Benz is the only source of profit for Beijing Automobile, which has a significant impact on the financial performance of BAIC. Once Mercedes-Benz holds a higher stake in Beijing Mercedes-Benz than Beijing Automobile, Beijing Mercedes-Benz will no longer be included in the financial statements as a major part of Beijing Automobile, which will greatly affect the book data of Beijing Automobile. Therefore, under the situation that the independent plate remains weak and still needs to rely on Beijing Mercedes-Benz for blood transfusion, BAIC does not want to be eliminated in this round of restructuring of the automobile industry, then the scramble for control of Beijing Mercedes-Benz will not be allowed to lose.

For now, BAIC can only seek to increase its stake in Mercedes-Benz to get more revenue. Mercedes-Benz sales in 2021 fell 5 per cent year-on-year to 2.3302 million vehicles, of which passenger car sales fell 5 per cent to 2.055 million, according to Mercedes-Benz Group results. Even though Mercedes-Benz sales fell but profits soared, its full-year net profit rose 485% year-on-year to 23.4 billion euros, excluding the already independent Daimler truck and bus business segment. Mercedes-Benz's full-year net profit rose 255% year-on-year to 14.2 billion euros.

On December 13, 2021, BAIC announced that in order to strengthen the long-term strategic cooperation between the two sides, it had become the largest shareholder of Mercedes-Benz Group by continuing to invest 9.98% of Mercedes-Benz AG in 2019. According to Mercedes-Benz Group, at the 2022 shareholders' meeting, the board of directors and the board of supervisors will submit a proposal for a dividend of 5 euros per share. Once the dividend plan is successfully passed, BAIC will receive 524.3 million euros, or about 3.67 billion yuan. In addition, according to sources, BAIC also intends to increase its stake in Mercedes-Benz to more than 12%, a move intended to hedge against the decline in revenue caused by the increase in foreign holdings of Beijing Mercedes-Benz, which is also supported by Mercedes-Benz. According to the 2021 earnings, BAIC will receive an additional 105.7 million euros, or about 744 million yuan, if it increases its stake in Mercedes-Benz to 12%.

Judging from the current news, Mercedes-Benz may control Beijing Mercedes-Benz, but BAIC will also further increase its stake in Mercedes-Benz to hedge. However, frequent increase in Mercedes-Benz shares may solve the earnings problem in the short term, but how to find its own profit growth point is a top priority for BAIC.

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