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Daimler-Beiqi Foton JV Receives Production Approval from Chinese Administration

Published: 7/16/2010
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German automaker Daimler and its joint venture partner Beiqi Foton Motor have received approval from the Chinese administration to begin their heavy commercial vehicle operations.

IHS Global Insight Perspective

 

Significance

Daimler and Chinese truck-maker Beiqi Foton Motor have secured approval from China's National Development and Reform Commission (NDRC) to establish their 50:50 heavy commercial vehicle (HCV) joint venture 18 months after signing the initial agreement.

Implications

The move appears to indicate that the major hurdles preventing an agreement may now at last be over and Daimler and Foton can begin work on their joint venture. Daimler is keen to capitalise on the accelerating Chinese HCV market, propelled by the fast-growing economy and infrastructure development projects, while Beiqi Foton hopes to take advantage of the Daimler's technological prowess and gain access to key global export markets including Europe and the United States.

Outlook

It remains to be seen if this alliance will indeed flourish and capitalise on the opportunities open to it. Daimler is keen to establish a meaningful presence in the Chinese market, while Foton and the Chinese authorities are keen to develop exports, one of the major issues for Daimler. If this JV is to flourish, it will take compromise on both parties, something neither are renowned for.

German major Daimler and Chinese truck-maker Beiqi Foton Motor have secured approval from China's National Development and Reform Commission (NDRC) to establish a 50:50 heavy commercial vehicle (HCV) joint venture (JV). The formal contract was signed today (16 July) in the presence of German chancellor Angela Merkel and Chinese premier Wen Jiabao (see Germany - China - Australia: 15 July 2010: Beiqi Foton to Re-Establish Truck Development JV with Daimler, to Venture into Australian Market).

As part of the new agreement, Daimler will extend its technological expertise to the Beiqi Foton alliance towards the development of diesel engines and exhaust gas systems, to be compliant with Euro-V emission standards. In addition, Daimler HCVs—particularly medium- and heavy-duty trucks—will be sold in China and across key Asian markets under the Beiqi Foton's Auman brand. The Beijing Foton Daimler Automotive JV will involve an investment of around 6.35 billion yuan (US$935.8 million), and will be based in Beijing's Huairou district with an annual production capacity of 100,000 vehicles and 45,000 diesel engines (see Germany - China: 30 January 2009: Daimler and Beiqi Foton Form Chinese Manufacturing JV).

Daimler chief executive Dr Dieter Zetsche said that, "The joint venture with Foton Motor represents another key milestone in implementing our China strategy. It further strengthens our position to address all segments of the market, and shows that we deliver what we promise taking full advantage of the enormous potential in China and other growth countries." Andreas Renschler, head of Daimler Trucks and Daimler Buses, added that, "The NDRC approval of the joint venture with Foton Motor in China is a key milestone in Daimler Truck's overall business strategy. The joint venture offers us an excellent springboard from which we can achieve growth, profitability and expansion in China, and with Foton as a global partner, in the international markets as well."

Xu Heyi, chairman of Beiqi Foton's parent unit Beijing Automotive Industry Holding (BAIC) expressed support for the news stating that, "We are very pleased to have Daimler Trucks, the world's largest truck manufacturer, as our strategic partner for BAIC's Foton Motor subsidiary. And we're happy that our further and even more profound collaboration with Daimler has been sealed today by this joint venture.”" Beiqi Foton chief executive Wang Jingyu added that, "we plan to use Daimler Trucks' technological expertise in particular to further expand our commercial vehicle activities. The establishment of the new joint venture marks our first step towards global businesses and collaborations."

Outlook and Implications

Beiqi Foton is currently the China's largest commercial vehicle (CV) manufacturer (by volume) and ranks in second position globally after Daimler, with a presence across 37 counties. The Chinese truck-maker was established in August 1996 under the aegis of BAIC, and boasts assets worth more than 8 billion yuan (see China: 4 May 2010: Beiqi Foton Posts US$75.9-mil. Net Profit During Q1, Revenues Surge 81.4% Y/Y). The automaker currently sells low-to-medium-priced trucks in the local market under its Forland brand, accounting for around 80% of its overall sales in the country. In its pursuit to further expand global presence, Beiqi Foton has confirmed intent to establish production operations in Russia (catering to the European market), Mexico (catering to the United States), and in India (see India - China: 20 May 2010: Beiqi Foton Plans Foray Into India, Sales Rise 41.4% Y/Y in January-April). The company is currently targeting overall vehicle sales of 1.5 million units per annum (upa) by 2015, and between 800,000 and 1 million upa from this year onwards, with almost 20% of this total coming in overseas markets (see Russia - China: 29 June 2010: Beiqi Foton Confirms Russian Production Plans).

The straightforward gains for Daimler are to capitalise on the growing demand for HCVs in the Chinese market. The rapid pace of economic growth and subsequent industrial development and logistical demand, combined with infrastructure development projects is rapidly propelling China forward as a major HCV market (see China: 11 June 2010: Navistar/Caterpillar Chinese Truck JV Plans to Invest US$585 Mil. in New Plant—Report) which many international players are keen to be part of. Daimler truck is keen to offset its reliance on key markets such as Europe and the United States and expand its global footprint to include China. Daimler Trucks has a highly successful autonomous operations in Brazil and its flourishing JV with KamAZ in Russia, but has thus far somewhat struggled to align its exacting standards in India where the failure of its Indian JV with Hero (see India: 16 April 2009: Hero Group to Exit Indian Truck JV with Daimler) has been a setback and the slow progress in China has hampered the company's global progress. Today's agreement appears to indicate that this hurdle has finally been overcome.

Whilst it still remains to be seen if the Daimler-Beiqi Foton alliance will be able to capitalise on the strength of its constituent partners, in Germany there is a saying "papier ist geduldig"—paper is patient—and developments will be keenly followed in the coming months for tangible progress. For Daimler, it appears it is at last time to set aside issues of global competition and establish a meaningful presence in China. Further driven by the fact that other global majors including Volvo, MAN, Hyundai, Navistar, Isuzu, all of which are already striving to gain a foothold in China, while trying to cope with the apparent competitive issues this will pose in the future. If the Daimler-Foton JV is to flourish, it will take compromise on both parties, something neither are particularly renowned for, but to coin anther phrase—necessity is the mother of invention—for both parties, progress over this JV is becoming a necessity.
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