China’s Geely May Buy 50% of Smart

Mercedes-Benz parent company Daimler is in talks to sell up to 50% of its Smart city-car division to Chinese automaker Geely, according to a report by the Financial Times.

Quoting three separate sources, the U.K.-based business newspaper reports the sale of a significant stake in Smart will be confirmed before the start of the 2019 Shanghai auto show in mid-April.

Smart, established in 1994, has regularly struggled to post a profit due to the slim margins of its limited range of urban-based models. In 2018, the division contributed just 128,802 of Mercedes-Benz’s 2,310,185 global sales.

The move to secure a stake in Smart by Geely, which became Daimler’s largest shareholder in 2018, appears set to strengthen ties between the two automakers.

Daimler and Geely already have announced plans for the establishment of a premium ride-hailing service to be headquartered in Hangzhou, China.

Recent speculation has suggested Daimler was preparing to alter its business activities for the Smart brand under its new Chairman Ola Källenius, leading the German automaker to announce it was in talks with “several possible co-operation partners” as it worked to establish plans for the next-generation of models, which it already has confirmed will be exclusively electric-driven.

Spokespeople from both Daimler and Geely declined to comment on the Financial Times report.

The immediate future of the Smart brand has been the subject of intense speculation since Daimler announced Mercedes-Benz Chairman Dieter Zetsche would step down in May after 13 years at the head of the German automaker.

The 65-year-old German has been a strong champion for the city-car division, having been instrumental in its creation and development over the past 25 years.

His successor, Källenius, is said to hold less enthusiasm for the loss-making division, which currently sells three models: the fortwo coupe, fortwo cabriolet and forfour.

Mercedes-Benz does not quote separate profit results for the Smart brand, though it is thought to have failed to generate a profit in each of the years it has been in existence. Analyst estimates suggest Smart loses up to €700 million ($788 million) annually.

A sale of a significant stake in Smart to Geely may face opposition in Germany, whose government recently ratified a law to allow it block investments above 15% by non-European Union companies in what it describes as “sensitive industries,” including defense, energy and automotive.

When Geely secured a 9.7% stake in Daimler in 2018 German politicians questioned the motives of the Chinese automaker, which is parent to its own Geely Car division, Volvo, Lotus, Lynk & Co., London Taxi, Proton and Yuan Cheng Auto.