Three factors in Daimler's $780M sale of Tesla stock

SAN FRANCISCO -- When Mercedes-Benz parent company Daimler AG announced late Tuesday that it had sold its 4 percent stake in Tesla Motors Inc. for a handsome $780 million, people naturally rushed for a simple explanation.

Was there a business dispute?

Did investors warn that Tesla’s stock was overvalued?

Did the German automaker lose faith in Tesla’s future prospects? Or, on the contrary, did Mercedes-Benz begin to see Tesla as a rival, instead of a partner?

Without having been in the boardroom to see the calculus behind the decision, it is hard to know what drove Daimler move to sell. But there is rarely one single, simple explanation for such a high-stakes business decision.

Besides the high price of Tesla stock -- even CEO Elon Musk has acknowledged that it is out of line with Tesla’s profitability -- there are many other factors that could have led Daimler to keep its ownership stake.

Over the past year or two, some of these incentives went away. Alone, they may not have been significant enough to tilt the decision from “hold” to “sell,” but it’s worth remembering how many factors are considered in a corporate capital tie-up.

• Daimler no longer has a seat on Tesla’s board.

  Under the terms of its $50 million investment in 2009, Daimler got a seat on Tesla’s board. That gave Daimler a window into Tesla’s innermost workings -- something that no other automaker could claim.

Daimler’s most recent representative was Harald Kroeger, a vice president who oversees the company’s electric-drive programs. His three-year term was set to expire at Tesla’s annual meeting in June, and the board essentially cut him out.

Tesla has partnerships with Toyota and Panasonic, but those companies didn’t receive a seat on the board. So when Kroeger’s term was due to expire, the board’s governance committee “determined that Tesla should maintain a neutral position,” according to regulatory filings. It passed a resolution saying that Kroeger would not be nominated for re-election, and reduced the number of director seats from seven to six.

Having lost its seat on the board, Daimler lost rare insight into the company, making its stake in Tesla less valuable and making a sale more attractive.

• Elon Musk is sharing Tesla’s patents for free.

  A major reason for Daimler’s investment in Tesla was to tap the company’s expertise in lithium ion battery packs, and use them for Mercedes-Benz vehicles.

The company plans to continue buying Tesla’s battery packs for the Mercedes B-Class electric vehicle, but the need for access to Tesla’s intellectual property became less pressing in June, when Musk declared that competitors were free to use its patents.

A large graphic poster -- “OEMs: All Our Patent Are Belong to You” -- now hangs where the patents once hung: just outside the cafeteria of Tesla’s corporate headquarters in Palo Alto, Calif., (The phrasing of this poster is not a typo, but rather, an in-joke from one of the Internet’s early viral videos.)

“Now that Musk is leaving the IP open, you don’t necessarily have to have a partnership with Tesla to do what you need to do,” David Whiston, an analyst at Morningstar, told Automotive News in an interview. “Even with the share sale, the relationship will continue -- so why not just sell high?”

• Tesla’s valuation is too high for it to be an acquisition target.

  Mercedes-Benz may be the world’s most prestigious luxury-car brand, but there are still some storm clouds on the horizon. All around the world, governments are imposing stricter rules on fuel consumption and carbon emissions -- rules that fall particularly hard on Daimler due to its reliance on thirsty gasoline engines.

One quick solution would be to acquire Tesla. With its all-electric cars, Tesla could have single-handedly rocketed Daimler toward compliance. Daimler would have also gained a brand with substantial prestige among young, wealthy buyers.

There’s just one problem: Tesla has a market capitalization of around $29 billion, roughly one-third of Daimler’s market capitalization, even though Mercedes-Benz currently sells about 50 times more vehicles globally a year.

The original investment may have allowed Daimler to check out the company and build relationships to pave the way for a takeover. But at current prices, a takeover would cost Daimler more than the company could possibly be willing to pay.