Chinese car maker seeks 50 per cent shareholding in Mercedes-Benz’s city car division, according to British report.

Mercedes-Benz parent company Daimler is in talks to sell up to 50 per cent of its Smart city car division to Chinese car maker Geely, according to a report by the Financial Times.

Quoting three separate sources, the British-based business newspaper claims the sale of a significant stake in Smart will be confirmed before the start of the 2019 Shanghai motor show in mid-April.

The city car division of Mercedes-Benz, established in 1994, has regularly struggled to post a profit due to the slim margins of its limited range of urban-based models.

In 2018, Smart contributed just 128,802 of Mercedes-Benz’s 2,310,185 global sales.

The move to secure a stake in Smart by Geely, which became Daimler’s largest shareholder in 2018, appears set to strengthen ties between the two car makers.

Daimler and Geely have already announced plans for the establishment of a premium ride-hailing service, which is planned to be headquartered in Hangzhou, China.

Recent speculation has suggested Daimler was preparing to alter its business activities for the Smart brand under its new chairman Ola Källenius, leading the German car maker to announce it was in talks in “several possible co-operation partners” as it worked to establish plans for the next-generation of models, which it has already confirmed will be purely electric driven.

Spokespeople from both Daimler and Geely declined on the information contained in the Financial Times report.

The immediate future of the Smart brand has been the subject of intense speculation since Daimler announced Mercedes-Benz chairman Dieter Zetsche would step down from his in May 2019 after 13 years at the head of the German car maker.

The 65-year-old German has been a strong champion for the city car division, having being instrumental in its creation and development over the past 25 years.

His successor Ola Källenius is said to hold less enthusiasm for the loss-making division, which currently sells three models: the fortwo coupe, fortwo cabriolet and forfour.

Mercedes-Benz does not quote separate profit results for the Smart brand, though it is thought to have failed to generate a profit in each of the years it has been in existence. Analyst estimates suggest Smart losses amount to up to €700 million annually.

A sale of a significant stake in Smart to Geely may face opposition in Germany, whose government recently ratified a law to allow it block investments above 15 per cent by non-EU companies in what it describes as “sensitive industries”, including defence, energy and automotive.

When Geely secured a 9.7 per cent stake in Daimler in 2018 German politicians questioned to motives of the Chinese car maker, which is parent to its own Geely Car division, Volvo, Lotus, Lynk & Co, London Taxi Company, Proton and Yuan Cheng Auto.