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Daimler, Tesla to Team on EV Development

Daimler says it is paying tens of millions for its 10% equity in Tesla, and options are in place that would allow the German auto maker to increase its share further.

In a case of opposites attracting, Daimler AG and Tesla Motors Inc. announce a deal today that will see the German auto maker take a 10% stake in the fledgling electric-vehicle maker.

The two companies couldn’t be more different, with Daimler a buttoned-down, volume car producer dating back to the industry’s beginnings and Tesla an upstart EV maker that sprang only recently from California’s Silicon Valley electronics basin.

But that’s what will make the relationship work and speed development of new-generation EV technology and advanced zero-emission vehicles, executives say at a press conference webcast from Daimler’s car museum in Stuttgart, Germany.

Details of the equity arrangement are scant, but Daimler says it is paying tens of millions for its 10% stake and options are in place that would allow the German auto maker to increase its share further.

In return, Daimler gets a seat on Tesla’s board, which will be filled by Herbert Kohler, vice president in charge of E-Drive and Future Mobility. Daimler also will help oversee future drivetrain development at Tesla.

The two auto makers have been working over the past 18 months to incorporate Tesla’s lithium-ion battery packs into a Smart car for testing, and it was during this development the two realized the fit was right to expand the collaboration.

“Tesla demonstrated its expertise on EVs,” says Tesla Chairman and CEO Elon Musk, alluding to the auto maker’s $109,000 Roadster and upcoming $49,900 Model S sedan that is slated to hit the market in 2011. “But we have nowhere near the capability of Daimler with general automotive expertise. Tesla brings the new elements of electric powertrain and Daimler brings traditional elements needed for mass production.

“That’s the essence of the partnership, and I think it makes a lot of sense.”

Initially, the two will work to bring the electric Smart cars to the retail market, but Thomas Weber, Daimler board member-research and development, says additional cooperation will focus on cell and battery management systems, battery cooling and electric powertrains.

“We will support Tesla from our side with vehicle knowhow and components,” he says, adding weight reduction may be one area where Daimler can provide some expertise.

The deal with Tesla doesn’t override a joint venture established in March between Daimler and Evonik Industries AG’s Li-Tec unit to develop and produce lithium-ion cells.

The California company says it is “agnostic” when it comes to the cells used in its battery packs and is eager to incorporate those from the Deutsche Accumotive GmbH JV into packs for Daimler.

“Tesla does not work on the cell itself,” Musk says. “Tesla’s R&D is on the battery pack. We just care about whether the cells are environmentally friendly, what their energy density is and how much they cost.”

Daimler says the first 1,000 electric Smarts using Tesla battery packs will roll out of Daimler’s Hambach, France, plant by year’s end for testing worldwide. About 100 already are undergoing trials in London.

Weber says the auto maker expects to have the vehicle in volume production – “numbers of five digits and above” – beginning in 2012 for sale globally. Executives decline to speculate on pricing for the electric Smarts.

Officials wouldn’t reveal specifications for the Smart EV, but Musk says it would “be possible to make a Smart car that goes like a bat out of hell.”

Additional EVs will follow, Weber indicates, hinting even a performance model holds interest for the German auto maker.

“We believe small cars are a really good targeted vehicle for (battery power),” he says. “But these guys from California also showed us sporty cars could use such a powertrain.”

Adds Musk: “Smart is just the beginning. This isn’t the day to announce anything, but there will be some very interesting projects in the future.”

Tesla wasn’t looking for an investor at this time, but felt Daimler was too good a fit to pass up, Musk says.

“Tesla doesn’t need capital immediately,” he says, adding, “The share price Daimler paid was not as high as we could have gotten, but we thought the partnership with Daimler was worth more than a slightly higher share price.”

Daimler isn’t abandoning its long-time research on fuel cells as it embraces battery power, Weber assures.

“We are going forward with this technology based on a modular concept,” he says, indicating batteries could be swapped out in favor of fuel cells in upcoming vehicles using the same electric drive components.

Weber says Daimler is “deeply convinced” electric powertrains will play a role in future mobility, and the marriage between an out-of-the-box thinker such as Tesla will help the more experienced and entrenched German auto maker remain a player.

“We are about to combine the best of both old and new schools,” he says.

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