BMW and Daimler invest together in New Venture

BMW and Daimler, the parent company of Mercedes-Benz, have unveiled a joint venture which covers new-generation services like driver-less cars, ride-hailing and pay-per-use cars.

Background

The landscape of the car market is one that is continuously changing with technology developing at breakneck speeds. German companies, BMW and Daimler have decided on investing together in a new joint venture worth €1 billion. The new venture has five strands:

• Reach Now: a smartphone-based route management and booking service
• Charge Now: expanding electric car charging
• Free Now: for taxi ride-hailing
• Park Now: dedicated to offering parking services
• Share Now: for car-sharing.

Daimler’s Car2Go business will be combined with BMW’s DriveNow, ChargeNow and ParkNow businesses with both carmakers holding a 50% stake in the new company.

BMW’s chairman Harold Krüger has said that the five services will merge even more closely to form a single mobility service portfolio with an all-electric, self –driving fleet of vehicles that can park and charge autonomously.

Analysis

BMW and Daimler, two giants in the automobile sector, are combining their resources in a joint mobility effort that involves autonomous cars, ride-hailing, car-sharing, electric scooters and electric charging. The move comes amidst uncertainty in the automobile industry with a decline in sales that threatens to upend business.

Automakers are embracing new business models and alternatives to car ownership as well as disruptive technologies like self –driving cars. The companies believe that by joining forces they will be able to survive the onslaught of tech companies such as Tesla.

Both the auto manufacturers are not only looking to dominate in their field but also at minimizing their risks in case of failure. The venture allows them to experiment with no company losing too much if the alternatives fizzle out.

 “There are people who are not interested in car ownership, but in mobility. Individual mobility, on-demand. And that’s where both companies came to the conclusion this is a field where we can be stronger together than separately” said Daimler CEO, Dieter Zetsche. “Everyone was looking at the other side and saw some strengths,” Harold Krüger, chairman of BMW, added. “We can combine our strengths and become a champion. This is the vision.”

As cities become more congested, and efforts to contain pollution are stepped up, their inhabitants are going to come under more pressure to give up their cars for alternative forms of transport. Both Daimler and BMW have admitted, it's likely that cars in cities will eventually be shared-use electric machines that drive themselves and can be summoned at the touch of a smartphone. They also released a joint statement quoting, “Further co-operation with other providers, including stakes in start-ups and established players, are also a possible option."

The venture is seen as a key cornerstone for the companies and the partnership that has been announced has made the rest of the industry sit up and take notice. The companies first announced their intentions to join forces in March 2018, but the plan required regulatory approval.

Deals between auto manufacturers are rarely exclusive. Companies like Ford and Volkswagen have also recently announced their intention to build trucks and vans together. Volkswagen and Mobileye, the computer vision firm owned by Intel, also announced a plan to launch a commercial self-driving ride-hailing service in Israel in 2019.

All the mobility services operated by Daimler and BMW will not be a part of the new venture. Daimler is on schedule to launch a robot taxi service with auto tech supplier Bosch in San Jose, California, in the second half of 2019. The service will use an on-demand ride-hailing app operated by Daimler Mobility Services. BMW has joined a consortium with Intel, Mobileye, and Fiat-Chrysler in order to develop semi-autonomous and fully autonomous technologies for production vehicles.

Assessment

Our assessment is that the announcement of two of the fiercest rivals in the automotive industry to co-invest is beginning of collaborative partnerships seen in the aerospace industry. We believe that companies are aware that there is a need to bridge the technology gap and sharing individual competencies is a way forward to ensure speed to market and reduce significant R&D cost. 

We feel that deal between the two German companies is primarily intended to face intense competition where traditional automobile companies may have to concede some space to "mobility providers".