Geely's Li: Daimler Deal Driven by Brand Cachet Vs Common Ground

(Bloomberg) -- Zhejiang Geely Holding Group Co. Chairman and founder Li Shufu made history last month when he became Daimler AG’s top shareholder, a move he says is driven more by the cachet of Germany’s storied auto brand and the outlook for autonomous driving and electric cars, rather than shared business prospects. Here is an explainer -- in his own words -- of what’s behind the investment, valued at 7 billion euros ($8.6 billion).

Geely's Li: Daimler Deal Driven by Brand Cachet Vs Common Ground

The 54-year-old made the comments during a brief interview this week on the sidelines of legislative meetings being held in Beijing and also through written responses to questions submitted by Bloomberg News. The following is a translation of those comments, which were originally made in Chinese.

Why did Geely invest in Daimler?

In my view, Daimler is the most promising among all traditional auto companies. Their vision is the most strategic and their management is exceptional. Daimler is the forefather of the automobile industry, an inventor, and has a very high level of social responsibility, compliance and management transparency. We should hold such a company in high regard.

The return on investment from the company is also very generous. It gives out much higher dividends compared with bank interest. The company is a very strong publicly traded company and an ideal investment target. Therefore we invested in it.

How do we generate synergies with them going forward? That will depend on whether they have such a desire. If they do, we’ll collaborate with them. If they don’t, then we won’t. Collaboration is not the only issue and is not a precondition. You have to understand this. Why do people think we shouldn’t make an investment if there are no synergies? Why shouldn’t we? Many people around the world have put money into Daimler. Why shouldn’t we? Why should this be surprising? This is purely a business decision. There’s no political background, no specific national factors. This is strictly a business decision. Currently we don’t have any plans to invest more. Who knows what the future brings? For now, we have no plans to make additional investments.

(The following are written responses to questions from Bloomberg News.)

What areas is Geely looking to increase investments in?

The evolution and rapid growth of Geely in the past three decades are intertwined with China’s opening-up reform and its economic development. What’s special about the automotive industry is that it must stand up to global competition. Cross-boarder M&As offer the most efficient way to help Chinese companies transform and upgrade themselves to become global enterprises. Geely’s growth and dream to become global is linked to our actions to step out of the country and expand overseas. We will further consolidate the global resources under the group to expand our product portfolio and improve technology and R&D to make the group more mature and diversified.

Your biggest challenge? The biggest risk for this investment?

Change is a constant. I like challenges. I am interested in every cutting-edge technology in the auto industry, be it autonomous driving or flying cars. Geely acquired Terrafugia to bring the dream of flying cars into reality. Volvo and Uber have also been developing self-driving cars together in the past two years.

The global auto industry in the 21st century has a big opportunity for innovation but it also faces challenges from companies outside our industry. It will be very difficult for carmakers to win the war if they go it alone. We must refresh our mindset and seize the opportunity by forming alliances with friends to help us reach commanding height in technology through synergies and sharing. Meanwhile, Daimler is an excellent company with an exceptional team of managers. For Geely, investing in Daimler is an investment opportunity of extreme value.

Any deal has its potential risks. What we hope to see is that as Chinese companies go out of the country, they can leverage the domestic and international markets to consolidate global resources for joint development. My focus is on how Geely continues to develop its own strengths in a better way from a new starting point to become a global enterprise rooted in China and facing the world, so as to help China’s auto industry move up the value chain in the world.

What will Geely look like in 20 years?

We will strive to develop digital technology and continue to promote the formation of online capabilities. The future car is a highly intelligent wheeled robot in the mobile space, and all our efforts are preparing for the day to come.

Why overseas M&A?

In order to adapt to the trend of economic globalization and to achieve the goal of becoming a global group, we have been exploring our own path of global development. The experience that we have gained from overseas mergers and acquisitions has changed the model that Chinese companies are used to, which is the use of capital in exchange for technologies. Instead we have come up with the new way of using technologies and capital in exchange for markets.

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