Despite Tesla Tie, Daimler Moving EV Work In-HouseBy Danny King April 14, 2011
Daimler AG's decision to make its own electric-vehicle motors in partnership with technology giant Robert Bosch furthers the automaker's efforts to make electric-drive production more of an in-house affair and appears to push non-German suppliers like longtime battery supplier Tesla Motors more into the margins. Daimler on Tuesday said it reached an agreement with Bosch to form a joint venture this year to develop motors for Mercedes-Benz and Smart battery-electric vehicles (BEVs) starting in 2012. Daimler spokeswoman Eva Wiese declined to say how much the companies would invest in the JV or what the production goals would be.
The move is part of Daimlers continued effort to bring more operations related to electric-drive vehicle production in house as it expands its inventory of vehicles with plugs. It also may signal a further narrowing of Daimler's relationship with Tesla, in which Daimler affiliates hold a 7.9 percent stake. Daimler tapped California-based EV specialist Tesla in 2008 to make lithium-ion battery packs for a test fleet of 1,000 Smart Fortwo ED battery-electric vehicles. That same year, Daimler formed a battery-making strategic alliance with Germany's Evonik Industries.
The company recently said that Deutsche Accumotive, the Daimler-Evonik joint venture - now 90 percent owned by Daimler - would make the Smart ED's batteries for 2012 models and beyond. The Smart EDs motors, which had been made by U.K.-based Zytek, are to be made by the Daimler-Bosch venture starting in 2012, cutting that company out of Daimler's EV supplier loop. Tesla still will make the batteries for a test fleet of Mercedes A-Class BEVs for the time being, according to Wiese. "We still have a stake in Tesla and were still working together and will hopefully have common projects, but we havent announced them yet," she said. "But we for sure wont be able to equip all of our products with our own batteries. Theres still a need and interest to work with Tesla and other suppliers for batteries.
Impact on Tesla
How much of an impact the Daimlers strategy will have on Tesla's battery-making business going forward remains to be seen. "We have multiple strategic engagements at different phases with Daimler, and expect to build on our successful relationship," Tesla spokesman Ricardo Reyes said in an e-mail exchange late Tuesday. "Tesla supplies Daimler with batteries, not electric motors. Their agreement with Bosch does not negatively affect our relationship with them. Rather it shows a growing commitment to electric vehicles, a trend we support.
Last year, Tesla generated $21.6 million from powertrain-component sales (which include battery packs) and $19.7 million from development services, indicating that about 35 percent of its 2010 revenue came from sources other than car sales. The company, which also reached an agreement last year to supply batteries for an EV version of the Toyota RAV4, didnt break out revenue stemming from its Daimler business but has said in an SEC filing that if it loses Daimler as a battery customer it would take a substantial hit.
With agreements to make batteries for both Daimler and Toyota in place, Teslas sales revenue from battery-pack production was estimated to jump to $109 million this year and to steadily increase to $158 million in 2014, Goldman Sachs analyst Patrick Archambault wrote in a Feb. 16 note to clients.
Daimler in May 2009 paid $50 million for 10 percent of Tesla as part of an agreement that gave the Mercedes-Benz parent a seat on Teslas board of directors. The deal also provided Daimler with the lithium-ion batteries and electric-drive technology needed to produce its Smart BEVs and other advanced-technology cars, including the Mercedes-Benz Class-A electric-car test fleet. The real value to Tesla of its Daimler ties may be in its influence on the smaller companys stock price. The value of the contract (Daimler) signed is nothing compared to the value of what it means to the investing community, said a knowledgeable source who asked to remain unidentified because of an ongoing relationship. Having Daimler as a backer is "huge validation," the source said.
According to Teslas April 8 filing with the SEC, Daimler affiliate Blackstar Investco LLC owned 7.49 million Tesla shares, or 7.9 percent of the company, second only to Tesla CEO Elon Musks 28.4 million shares. Tesla, which sells its all-electric Roadster for $109,000 and is planning to start selling a new sedan next year, hadnt filed any documents with the Securities and Exchange Commission as of late Tuesday indicating that Daimler or Blackstar had sold any shares. Wiese said Daimler had no plans to divest its Tesla holdings. Tesla shares, which went public at $17 last June, were trading at $25.14 on the Nasdaq exchange at midday today.
While Tesla continues to supply battery packs to Daimler, the German automaker has reached out to other companies in its effort to broaden its range of electric-drive vehicles. One of those efforts resulted in an agreement last year to collaborate with Nissan and its sister company Renault on developing gas, diesel and electric motors for the next-generation of the Smart and the Renault Twingo in an effort to meet progressively more stringent greenhouse-gas emissions standards in Europe. Daimler research chief Thomas Weber told Reuters in September that the partnership would likely be expanded beyond those two models.
Tesla, which has never been profitable, may have ruffled feathers at Daimler by not telling the company ahead of time of its 2010 agreement to make batteries for Toyota, according to one person familiar with the process. A second knowledgeable source told Auto Observer that insiders at Toyota believe the Tesla-Daimler relationship is souring. Toyota made its own $50 million investment in Tesla when it acquired 2.94 million shares in the EV maker as it went public last June. The following month, Tesla began developing batteries for the RAV4 EV and later received a $60 million development contact for prototype versions of the all-electric crossover SUV.
As for Daimler, the Bosch agreement is part of a plan to use electric-drive powertrains as a way to help resuscitate the Smart brand, whose sales have stalled. Last year, Smarts global unit sales fell 17 percent from a year earlier to 97,500 vehicles while the Mercedes-Benz brand boosted vehicle sales by 15 percent to 1.17 million units. In February, Mercedes-Benz said it would take over U.S. distribution of Smart vehicles from Penske Automotive Group, which launched the Smart brand in the U.S. in 2008. The company has estimated that mass production of Smart Fortwo BEVs, about 500 of which are on the road worldwide, may start as soon as September 2012.
Senior Editor John O'Dell contributed to this article.