Daimler to invest millions in Tesla; announces partnership

Daimler, the parent company of Mercedes and Smart, announced Tuesday morning it will make a multi-million-dollar investment in electric car startup Tesla Motors. As part of the deal, Daimler will acquire a 10 percent stake in Tesla. Although a specific figure has not been disclosed, the investment is valued in the tens of millions of dollars.

"It's fantastic that Daimler has chosen to invest in Tesla," said Tesla's CEO Elon Musk.

Mr. Musk noted Tesla could have found other investors to pay more per share than Daimler, but that the value of a partnership with the German automaker outweighed the need for more cash. Moreover, Tesla undoubtedly believes the large investment from Daimler helps make the case for the $300 million in loans the company is seeking from the U.S. Department of Energy in order to build its Model S plant in California.

The agreement involves sourcing battery cells from Li-Tek, a battery manufacturer owned by Daimler and Evonik. Although Daimler's deal with Li-Tek predates its relationship to Tesla, there is no conflict of interest. Tesla's expertise is in building whole battery packs from preexisting cells. Li-Tek is therefore likely to become the primary supplier of the necessary cells.

The deal builds upon a previous agreement between the two companies whereby Tesla would provide battery packs for an electric Smart car. Daimler board member Dr. Thomas Weber explained the partnership will begin with Smart, but will later go beyond that.

"The first step is to develop the electric smart car, with the Tesla battery pack," says Weber. "We will extend in fields like battery and cell management, battery cooling technology, as well as electric drives, with support of Tesla's know how, it's a win-win situation."

"Time will come that we can announce a new project," added Weber. "If we can combine experience on engineering side, components for brakes, it widen up fields with zero emission vehicles."

There is speculation Mercedes could provide Tesla with various components -- even an entire chassis -- for its Model S sedan. However, executives from both companies were mum on the issue.

"Today's not the day to announce future collaborations," said Musk.