Why Is Mercedes-Benz Buying Stake in Aston Martin?

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Oct. 28 2020, Updated 10:11 a.m. ET

Daimler, Mercedes-Benz’s parent company, and Aston Martin have announced a strategic agreement. Daimler would take up to 20 percent stake in Aston Martin. Why is Mercedes-Benz buying stake in Aston Martin? What would the deal mean for both of the companies? 

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Aston Martin stock rose after the news

Aston Martin's London-listed shares, which trade under the symbol “AML,” were up over 6 percent in early trade on Wednesday, Oct. 28. The stock has lost almost 90 percent of its value this year. Aston Martin also announced a refinancing plan and intends to raise around $1.7 billion to repay its existing debt that's up for maturity. The company targets revenues of $2.6 billion and an EBITDA of $652 million by 2025.

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Mercedes-Benz stock price fell after the announcement

In a statement, Daimler said, “We already have a successful technology partnership in place with Aston Martin that has benefitted both companies. With this new expanded partnership we will be able to provide Aston Martin with access to new cutting-edge technologies and components.” While Aston Martin stock was up sharply, Daimler stock was trading almost 5 percent lower. The stock has lost almost 5 percent in 2020.

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The partnership would help both of the companies. Automakers have been looking at alliances, especially in the electric vehicle and autonomous space. Tesla’s market capitalization has soared past the combined market capitalizations of the world’s largest automakers even though the company only sells a fraction of the cars that mainstream automakers sell. However, investors have given a miss to mainstream automakers and poured money into electric vehicle stocks like Tesla and NIO, which have both soared this year.

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According to Bernstein Research analyst Arndt Ellinghorst, the enhanced partnership with Mercedes-Benz would help Aston Martin develop electric cars—an area where it lags other automakers. Also, Aston Martin could become a part of Daimler in due course. Jefferies also termed the partnership “clever.”

Daimler and Waymo announce a deal

Daimler also announced a strategic partnership with Alphabet’s subsidiary Waymo to build autonomous semi trucks. “In recent years, we have achieved significant progress on our global roadmap to bringing series-produced highly automated trucks to the road,” said Martin Daum, the chairman Daimler Truck AG.

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He said, “With our strategic partnership with Waymo as the leader in autonomous driving, we are taking another important step towards that goal. This partnership complements Daimler Trucks’ dual strategy approach, of working with two strong partners to deliver autonomous L4 solutions that are seamlessly integrated with our best-in class trucks, to our customers.”

Last year, Volkswagen and Ford expanded their partnership to electric vehicles and autonomous technologies. Automakers can pool resources and reduce their cash outflow through partnerships and collaborations.

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