In a bid to disrupt itself before others seize the initiative, the inventor of the modern automobile is ending over a century of history of building both luxury cars and commercial trucks.
On Friday, shareholders of Daimler AG voted overwhelmingly in favor of the board’s proposal to break the nearly 140-year-old industrial icon in half—one part for cars, the other for trucks—under a plan called Project Focus.
By splitting itself up into two hopefully more agile companies focused on their respective segments, management aims to streamline operations, unleash value slumbering in the stock price and better position the constituent businesses for a carbon-neutral and autonomous future.
“It’s right to carry out this realignment now: self-determined and from a position of strength,” chief executive Ola Källenius told investors during a extraordinary shareholder meeting called to approve his plans. “We can establish two undisputed innovation leaders (that) will set the pace in both industries.”
Decade after decade, Mercedes-Benz sat atop the premium car industry’s Mount Olympus with the S-Class at the pinnacle of its range. Affluent car buyers snapped up the luxury ride twice as often as the next closest competitor no matter what the engineers at rivals like BMW could dream up.
However, the arrival of Tesla’s Model S in 2012 and the subsequent shift in customer tastes to powerful, zero-emission electric vehicles redefined modern automotive luxury, presenting a direct threat to Mercedes’ reputation for innovation.
To reclaim its historic place at the industry summit, CEO Källenius wants to free Mercedes from the fetters of a centralized management structure that includes ties to his group’s commercial vehicles business.
As a result, Daimler will be renamed Mercedes-Benz Group AG, effective in February, and be formed around the core passenger car business, while the rest of the activities (excluding its vans business) will be carved out into a separate listed company.
That new entity, to be called Daimler Truck Holding AG, is roughly a third of the size of Mercedes, but it is the world market leader in commercial vehicles. Employing approximately 100,000 people at more than 35 main sites, it generated revenue of €18.7 billion ($21.7 billion) in the first half of 2021, with an operating profit of around €1.9 billion.
Little shared save for the logo
Instead of a traditional IPO, which often depends on achieving a minimum valuation for the existing owner, Daimler’s Swedish CEO has chosen a market-neutral spin off in which his company hands investors shares in the new business, which sells buses, coaches and trucks such as the Mercedes-Benz Actros and Freightliner Cascadia.
Shares are slated to begin trading before the year is out, according to the company. The remaining business will retain a minority stake of 35% in the new Daimler Trucks AG, in order to enjoy the financial upside offered by the listing. The holding is not considered strategic, however, suggesting the equity interest will shrink over time.
Asked by shareholders about the reasoning behind the move, Källenius argued the two businesses shared little in common with each other except for the familiar three-pointed star badged on every Mercedes.
Passenger cars and heavy trucks have vastly different customer groups, distinct and disparate development lifetimes and few common components that fit into both.
For Källenius, then, there is little logic in owning both, especially since investors typically prefer pure-play companies subject to one business cycle over conglomerates that mix several in an attempt to offset invariable downturns.
“Those synergies we do have are also partly lost through the added complexity in corporate structures,” he reasoned. “So the benefits of a spin-off clearly outweigh the disadvantages.”
There is however one famous and richly valued company that doesn’t follow this same path, and that is Tesla itself. Elon Musk’s company also sells energy storage systems and solar rooftops, and recently even said it would expand into robotics with an android prototype announced for next year.
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