German auto major Daimler, which is exiting from its investments in other large auto companies, will retain its 6.64% shareholding in Tata Motors as it expects major growth from components supply to the Indian company's recently acquired Jaguar Land Rover brands.
The move comes even as Daimler is looking to sell its 19.9% stake in Chrysler to private equity player Cerberus Capital Management. While Tata has not approached Daimler to buy components yet, the German car maker is keen to supply to Jaguar Land Rover, as Daimler's high quality products fit into the marquee brands, sources said.
As per current valuations, Daimler's stake in Tata Motors is worth nearly Rs 900 crore. Tata Motors had an alliance with Daimler Benz more than 50 years ago for the Benz technology for trucks.
Although Daimler's stake in Tata Motors has fallen from 10% to 6.64%, the German company currently has no plans to revise its equity stake in India's largest vehicle maker and wants to remain as a dormant investor. "Daimler will not sell its stake in Tata Motors," a spokesperson for Daimler said in response to an e-mail query. The German company also didn't want to comment on Tata Motors' ongoing rights issue, which has a combination of ordinary and differential voting rights.
As global vehicle sales continue to fall, most manufacturers are looking at auto components as a key revenue earner. Premium car makers are teaming up to produce and purchase car components like engine modules as this would bring economies of scale and boost profits.
The shift in strategy is mainly due to the difficulties that car makers are facing from rising input costs that are putting a pressure on profitability. Cerberus had recently approached Daimler about the possible redemption of its 19.9% stake in Chrysler. "We are currently in discussions. In the event of a successful transaction, all existing industrial relationships between Daimler and Chrysler would continue," Cerberus had said.
In 2007, Cerberus bought 80.1% of Chrysler from Daimler for $7.4 billion. This sale brought to an end the 9 year partnership between Daimler and Chrysler, though the companies continue to share diesel-engine technology.
Incidentally Daimler owns 40% in McLaren Group and this "is a long term investment. We will continue to retain our stake," the company official added. Last year, Daimler entered into a 60:40 joint venture with the Hero group for manufacturing 70,000 trucks every year by 2010.