Here’s a question for you: how does German automaker Daimler make a cool $780 million from the electric car revolution without selling hundreds of thousands of electric cars in the process?
Answer: rescue Californian automaker Tesla Motors from a near certain death in 2009 by acquiring nearly 10 percent of the company, wait for it to become successful, then cash in to the tune of $780 million.
It might sound like the Wall Street ambitions of a fresh-faced young trader eager keen to prove themselves in the cut and thrust world of the New York stock exchange, but that’s exactly what happened yesterday when Daimler sold the remains of its shareholding in Tesla Motors [NASDAQ:TSLA], ten months after agreeing to an equity collar that it had said would likely last for the next three years.
The story begins in May 2009, when Daimler offered a struggling Tesla Motors a reported $50 million for just under a 10 percent share of the Californian startup. In addition to acquiring shares in Tesla, Daimler struck up an agreement with Tesla in which Tesla would provide drivetrains and battery packs to Daimler for use in its own range of electric cars. Initially, that agreement was to provide Daimler with battery packs and drivetrains for its prototype Smart ForTwo Electric Drive, but soon expanded to include a limited-production test fleet of all-electric Mercedes-Benz A Class Electric Drive cars and, more recently, a production version of the Mercedes-Benz B-Class Electric Drive.
Shortly after acquiring the Tesla Stock however, Daimler sold off around forty percent of its investment in Tesla to Abu-Dhabi-based Aabar Investments, an investment company controlled by the International Petroleum Investment Company (IPIC) which was wholly owned by the Government of the Emirate of Abu Dhabi. At the time, Aabar Investments already held a 9.1 percent stake in Daimler.
Then in June 2012, Daimler’s investment arm, Blackstar InvestCo LLC transferred a further 3.25 million Tesla shares to the same Abu Dhabi sovereign-wealth fund, but retained ownership of those shares
Yet despite an equity collar signed last year in which Daimler said it expected its partnership and shareholding of Tesla to continue for at least three years, Daimler’s decision to sell its final 4 percent share of Tesla demonstrates a shrewd business move on the part of the German company. With Tesla Shares slowly dropping from what Tesla CEO Elon Musk had admitted was a dramatically overinflated price, Daimler’s sale allowed it to capitalise on the overinflated stock long before it adjusted to its true value.
The result? A cool $780 million in profit over the original price Daimler paid for the shares, resulting in a healthy outcome for the German company.
Despite selling its shares in Tesla however, Daimler said in its release on Tuesday that it had no plans to end its cooperation with Tesla on electric cars.
“We pursue our strategy for emission-free driving consequently,” said Deiter Zetsche, chair of Daimler’s board and head of its luxury arm Mercedes-Benz. “Electric vehicles are one component of this roadmap. In Tesla we do have a bold partner.”
Moving forward, Daimler is expected to continue working with Tesla on production of the Mercedes-Benz B-Class electric drive, which launched in the U.S. earlier this year.
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