Dieter Setsche and Wang Chuanfu

Daimler AG and BYD signed a Memorandum of Understanding in Stuttgart in early March to establish a comprehensive technology partnership for the development of electric vehicles for the China market.

Under the agreement, Daimler and BYD intend to develop a new electric vehicle for sale in China. The vehicle will be marketed under a new brand jointly created and owned by the partners. A common technology center will be established in China to develop, design and test this new electric vehicle.

The chairmen of both companies expressed their belief that the MOU represents a win-win agreement. "Daimler's know-how in electric vehicle architecture and BYD's excellence in battery technology and e-drive systems are a perfect match," said Dieter Zetsche, Chairman of the Board of Management of Daimler AG. "With this technology partnership, we have created a win-win business model with complimentary competences," said Wang Chuanfu, Chairman of BYD Company Ltd.

Zetsche told reporters at the Geneva Motor Show on Tuesday that development of the new car will start soon and Daimler expects to "easily" invest €100 million ($135 million) in the planned electric car joint venture. According to Chinese regulations, such a JV will have to be approved by the government.

The complementary competiveness of the two partners is obvious. Daimler is the world's oldest automaker with a history of 126 years. It has embarked on developing electric vehicles for zero-emissions driving. The company recently launched the Smart electric drive and plans to introduce an all-electric version of the Mercedes-Benz A-Class in 2010. Daimler prides itself in the knowhow of developing automotive architectures for electric vehicle applications.

BYD, the world's youngest carmaker, is the world's leading manufacturer of nickel-cadmium (NiCD), nickel-metal hydride (NiMH) and lithium-ion (Li-ion) rechargeable batteries as well as Fe-based power batteries. It successfully launched the world's first plug-in hybrid, the F3DM, in December 2008 and is gearing up of launching its pure electric vehicle, the e6, in China and the U.S. in 2010. Daimler's knowhow in automobile architectures and BYD's proprietary power battery technology and e-drive system would combine to create a competitive electric car for the China market which, with strong government support, has the potential of becoming the world's leading EV market.

According to Zetsche, the planned electric car will be positioned above BYD's current products and below the Mercedes premium range, so that it does not compete with the partners' existing models.

The Daimler-BYD tie-up is offering the German automaker a great opportunity to foray into the expanding China market against its competitors and to have a foothold in the world's potentially largest electric vehicle market. BYD will benefit from the deal to learn from the world's oldest automaker in automobile design and assembly so as to elevate the technology level of its own brands. Although the MOU says that the new car will be developed for the China market, the companies have an understanding to further discuss additional business opportunities of mutual interests.

If approved by the government, which is most likely, the Daimler-BYD tie-up will represent a new form of joint venture in OE assembly business in China.

For the first time in the history of Sino-foreign joint venturing of OEM assemblies, a local Chinese company is offering proprietary technology instead of merely land, buildings and manufacturing facilities. It is also the first time when a multinational automaker agrees from the outset to create a new automobile brand in China that is jointly owned by the partners.