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Business model

Daimler can look back on a tradition covering more than 125 years – a tradition that extends back to Gottlieb Daimler and Carl Benz, the inventors of the automobile, and features pioneering achievements in automotive engineering. Today, the Daimler Group is a globally leading vehicle manufacturer with an unparalleled range of premium automobiles, trucks, vans and buses. The product portfolio is rounded out by a range of tailored financial services and mobility services.

Daimler AG is the parent company of the Daimler Group and is domiciled in Stuttgart (Mercedesstraße 137, 70327 Stuttgart, Germany). The main business of Daimler AG is the devel­opment, production and distribution of cars, trucks and vans in Germany and the management of the Daimler Group. The management reports for Daimler AG and for the Daimler Group are combined in this management report.

With its strong brands, Daimler is active in nearly all the countries of the world. The Group has production facilities in a total of 19 countries and more than 8,500 sales centers worldwide. The global networking of research and development activities and of production and sales locations gives Daimler consider­able advantages in the international competitive field and also offers additional growth opportunities. In addition, we can apply our innovative drive and safety technologies in a broad portfolio of vehicles while utilizing experience and expertise from all parts of the Group.

In 2014, Daimler increased its revenue by 10% to €129.9 billion. The individual divisions contributed to this total as follows: Mercedes­Benz Cars 55%, Daimler Trucks 23%, Mercedes­Benz Vans 7%, Daimler Buses 3% and Daimler Financial Services 12%. At the end of 2014, Daimler employed a total workforce of approximately 280,000 people worldwide.

The products supplied by the Mercedes‑Benz Cars division comprise a broad spectrum of premium vehicles of the Mercedes­Benz brand and its Mercedes­AMG and Mercedes­Maybach sub­brands. These vehicles range from the compact models of the A­Class and B­Class to various sport utility vehicles, roadsters, coupes and convertibles, and S­Class luxury sedans. Additional products are the high­quality small cars of the smart brand. The main country of manufacture is Germany, but the division also has production facilities in the United States, China, France, Hungary, Romania, South Africa, India, Vietnam and Indonesia. Since August 2013, the A­Class has also been produced for us by Valmet Automotive in Finland. All in all, Mercedes­Benz Cars has 18 production sites worldwide at present. In the medium term, we anticipate significant growth in worldwide demand for automobiles and above­average growth in the premium car segment. In order to ensure we can exploit this potential, we are creating additional production capacities, especially at Beijing Benz Automotive Co., Ltd. (BBAC) in China and at our plants in the United States and India. We will also expand our global production network with a new plant in Brazil, where we plan to produce the next genera­tion of the C­Class as well as the GLA compact SUV for the local market starting in 2016. The most important markets for Mercedes­Benz Cars in 2014 were Germany with 16% of unit sales, the other markets of Western Europe (23%), the United States (20%) and China (17%).

As the biggest globally active manufacturer of trucks above 6 metric tons gross vehicle weight, Daimler Trucks develops and produces vehicles in a global network under the brands Mercedes­Benz, Freightliner, Western Star, FUSO and Bharat­Benz. The division’s 27 production facilities are located in the NAFTA region (14, thereof 11 in the United States and 3 in Mexico), Europe (7), Asia (3), South America (2) and Africa (1). In China, Beijing Foton Daimler Automotive Co., Ltd. (BFDA), a joint venture with our Chinese partner Beiqi Foton Motor Co., Ltd., has been producing trucks under the Auman brand name since July 2012. Daimler Trucks’ product range includes light,

Corporate Profile.

Mercedes-Benz Cars 55%

Daimler Trucks 23%

Mercedes-Benz Vans 7%

Daimler Buses 3%

Daimler Financial Services 12%

Consolidated revenue by division

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medium and heavy-duty trucks for local and long-distance deliveries and construction sites, as well as special vehicles used mainly in municipal applications. Due to close links in terms of production technology, the division’s product range also includes the buses of the Thomas Built Buses and FUSO brands. Daimler Trucks’ most important sales markets in 2014 were Asia, with 34% of unit sales, the NAFTA region (33%), Western Europe (12%) and Latin America excluding Mexico (9%).

The product range of the Mercedes‑Benz Vans division in the segment for medium-sized and large vans comprises the Sprinter and Vito series. Our portfolio is rounded out at the lower end by the Mercedes Benz Citan city van, the addition of which makes us a full-range supplier in the van market. In 2014, we also introduced the new V-Class, which is a new multi-purpose vehicle (MPV). We continue to manufacture the Viano in China for private customers. Mercedes-Benz Vans has manufacturing facilities at a total of nine locations in Germany, Spain, the United States and Argentina, as well as in China within the framework of the Fujian Benz Automotive Co., Ltd. joint venture, and in France in the context of the strategic alliance with Renault-Nissan. The Mercedes-Benz Sprinter Classic is produced under license by our partner GAZ in Russia. The most important markets for vans at the moment are in Western Europe, which accounts for 65% of unit sales. As part of the “Mercedes-Benz Vans goes global” business strategy, we are also increasingly developing the growth markets of South America and Asia, as well as the Russian van market, through appropriate distribution and production activities in those regions. We plan to more effectively exploit the potential of the expanding North American van market in the future through local production of the Sprinter and the introduction of the Vito. The Sprinter is sold in the United States not only as a Mercedes-Benz vehicle but also under the Freight-liner brand name.

The Daimler Buses division with its brands Mercedes-Benz and Setra is the undisputed industry leader in its core markets in the segment for buses above 8 metric tons. The division’s product range comprises city and intercity buses, coaches and bus chassis. The largest of the division’s 13 production sites are located in Germany, France, Spain, Turkey, Argentina, Brazil and Mexico. During the year under review, we also laid the cornerstone for a new bus plant in India that will begin operating in 2015. Daimler Buses generated 23% of its revenue in Western Europe and 53% in Latin America (excluding Mexico) in 2014. While we mainly sell complete buses in Europe, our business in Latin America, Mexico, Africa and Asia is focused on the production and distribution of bus chassis.

The Daimler Financial Services division supports the sales of the Daimler Group’s automotive brands in 40 countries. Its product portfolio primarily consists of tailored financing and leasing packages for customers and dealers, but it also pro-vides insurance, fleet management services, investment prod-ucts and credit cards, as well as various mobility services such as the “moovel” mobility platform, the “mytaxi” app and the flexible car2go car-sharing concept. The main areas of the division’s activities are Western Europe and North America, and increasingly Asia as well. During the year under review, Daimler Financial Services financed or leased more than four out of ten vehicles sold by the Daimler Group. The division’s contract volume of €99.0 billion covers more than 3.3 million vehicles. Daimler Financial Services also holds a 45% interest in the Toll Collect consortium, which operates an electronic road-charging system for trucks on highways in Germany.

Daimler is also active in the global automotive industry and related sectors through a broad network of subsidiaries, holdings and partnerships. The statement of investments of Daimler AG in accordance with Section 313 of the German Commercial Code (HGB) can be found in E Note 39 of the Notes to the Con-solidated Financial Statements.

Mercedes-BenzCars

Daimler Trucks Mercedes-BenzVans

Daimler Buses DaimlerFinancial Services

€73.6 billion

129,106

€32.4 billion

82,743

€10.0 billion

15,782

€4.2 billion

16,631

€16.0 billion

8,878

Revenue

Employees

Brands

Daimler Group structure 2014

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Portfolio changes and strategic partnerships

By means of targeted investments and future­oriented partner­ships, we strengthened our core business and utilized addi­tional growth potential in 2014. At the same time, we focused on the continuous further development of our existing busi­ness portfolio.

Daimler sells its interest in Rolls‑Royce Power Systems Holding. In March 2014, the Board of Management and the Supervisory Board of Daimler AG decided to exercise an option to sell the Company’s interest in Rolls­Royce Power Systems Holding (RRPSH) to the other shareholder. Rolls­Royce’s acquisition of Daimler’s shares will allow it to strengthen the company by integrating additional Rolls­Royce activities and technologies into it. On the basis of long­term supply agree­ments, Daimler will remain a key supplier of heavy­duty and medium­duty diesel engines to Rolls­Royce Power Systems. Daimler also plans to further expand its business activities with engines and drive systems for professional non­bus and non­truck (off­highway) applications. The transaction generated proceeds of €2.4 billion for Daimler in the third quarter. Daimler will use these funds to strengthen the Group’s core business.

Strategic partnership in China strengthened. Also in March 2014, Daimler AG and its Chinese partner Beijing Auto­motive Industry Corporation (BAIC) signed an agreement to increase production capacities at Beijing Benz Automotive Co., Ltd. (BBAC). This move will lead to a further expansion of our activities in China and will also strengthen our strategic partner­ship with BAIC. Around €4 billion is currently being invested at BBAC, with €1 billion earmarked for the expansion of local car and engine production capacity alone through 2015. The existing annual capacity at BBAC for production of the C­Class, E­Class and GLK will be more than doubled to over 200,000 units by the end of 2015. This figure also includes the GLA com­pact SUV, which BBAC will begin manufacturing in 2015.

Daimler had already deepened its strategic partnership with BAIC in November 2013 with the acquisition of a 12% equity interest in BAIC Motor, the car division of the BAIC Group. BAIC Motor has been listed on the Hong Kong Stock Exchange since December 2014.

moovel GmbH consolidates mobility services. In April 2014, the umbrella company for the car2go, car2go black and moovel mobility services was renamed as moovel GmbH. The moovel mobility app offers users a central access portal for numerous mobility services. The app’s features were expanded in 2014 and moovel also began offering the app in additional cities both in Germany and abroad during the year under review. moovel has also teamed up with new partners, which gives customers even more choices for getting where they need to go. The renaming underscores the importance of the mobility platform, as well as its strong customer focus.

In September 2014, moovel completely acquired Intelligent Apps GmbH, which offers the mytaxi service, and also took over the US mobility services provider RideScout LLC. mytaxi is the world’s first app that directly links passengers and taxi drivers. moovel GmbH has had an interest in mytaxi since the beginning of 2012. RideScout is the well known provider of the leading mobility app in North America. RideScout offers an app­based mobility platform that shows customers in nearly 70 cities in North America the best way to get to their destina­tions. With the acquisition of RideScout, moovel is strength­ening its presence in the international mobility services market and accelerating its global development.

Daimler takes over battery manufacturing activities. In April 2014, Daimler AG and Evonik Industries AG reorganized their electric mobility activities in Kamenz and Kirchheim unter Teck. Daimler has now acquired the shares of Li­Tec Battery GmbH previously held by Evonik (50.1%), as well as Evonik’s stake in Deutsche ACCUmotive GmbH & Co. KG (10%). This makes it the sole shareholder in both companies. With the increasing concentration of battery­cell production at several large specialist companies, and as a result of extreme price competition between major manufacturers, battery cells have now become an inexpensive mass product. Given this situa­tion, it no longer makes any economic sense for us to manufac­ture battery cells for specific use in automotive applications. We have therefore decided to discontinue production of cells at Li­Tec at the end of 2015. Nevertheless, the development of complete battery systems still requires the type of extremely specific expertise that we have accumulated over the past few years and will to continue to utilize in the future. As a result, Deutsche ACCUmotive will significantly expand its lithium­ion battery production capacity in Kamenz. We will invest approxi­mately €100 million in this expansion over the next few years.

Additional capacities for transmission production. As part of our efforts to accommodate the increasing demand for automatic transmissions, we laid the cornerstone in April 2014 for a new assembly plant to be operated by our Star Trans­mission subsidiary in Romania. This additional capacity in Sebes will supplement existing transmission activities at the Unter­türkheim plant, where the new nine­speed 9G­TRONIC automatic transmission from Mercedes­Benz will go into production in 2016.

Cooperation with Renault‑Nissan expanded. Cooperation between Daimler and Renault­Nissan remains very successful. The number of joint projects has increased fourfold, from three to 12, since the partnership commenced in 2010.

An important milestone in 2014 was the market launch of the first vehicles fully co­developed from scratch: the new Renault Twingo and the new smart fortwo and forfour models. The smart fortwo is built at the smart plant in Hambach, France, while the Renault Twingo and smart forfour are manufactured at the Renault plant in Novo Mesto, Slovenia. The Renault Twingo was launched in Europe in September; the smart fortwo and smart forfour followed in November.

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In June, joint production of a two­liter, turbocharged four­ cylinder gasoline engine began at a new plant in Tennessee in the United States. The engines, which are built at the Infiniti Decherd Powertrain facility, will initially be used in the Infiniti Q50 sports sedan for the European market and in the Mercedes­Benz C­Class. When fully ramped up, the new plant will have a production capacity of 250,000 units each year.

Also in June 2014, Renault­Nissan and Daimler AG announced an agreement covering the development of premium compact cars and the joint production of vehicles in Mexico. A new 50:50 joint venture is responsible for building and operating a new manufacturing facility in Aguascalientes, Mexico. The new plant is being constructed at a site in the direct vicinity of an existing Nissan facility. After the production launch, the new plant will be ramped up to an annual capacity of 300,000 units. Production is scheduled to begin with Infiniti models in 2017. The plant will start manufacturing Mercedes­Benz brand vehicles in 2018.

In the van segment, Daimler’s Mitsubishi Fuso Truck and Bus Corporation (MFTBC) and Nissan Motor Co. Ltd. signed a contract in October 2014 covering the supply of finished commercial vans for export. Under the terms of the contract, Nissan is supplying its “NV350 Urvan” (GVW: 3.5 metric tons) to Mitsubishi Fuso, which has been selling the model as the “Canter Van” in the Middle East since the end of 2014.

Cooperation with Tesla restructured. Daimler reorganized its cooperation with Tesla Motors Inc. in October. Within the framework of this restructuring, we terminated the share­price hedge initiated at the end of 2013 and sold our stake of approximately 4% in Tesla. The partnership and cooperation with Tesla do not require us to have a financial interest in the company. The sale of our Tesla shares generated proceeds of approximately €0.6 billion, which will be used to strengthen business operations. Cooperation with Tesla will nevertheless remain an important part of Daimler’s activities in the field of electric mobility in the future.

Interest in MV Agusta. In October 2014, Mercedes­AMG and the motorcycle manufacturer MV Agusta signed a cooper­ation agreement that will create a long­term partnership. The two brands, which have long traditions and histories, will cooperate in the area of sales and marketing. After the agreement was approved by the responsible antitrust author­ities, Mercedes­AMG GmbH acquired a 25% interest in MV Agusta S.p.A. in November 2014.

Performance measurement system

Financial performance measures. The financial performance measures used at Daimler are oriented toward our investors’ interests and expectations and provide the foundation for our value­based management.

Value added. Value added is a key element of our performance measurement system, which is applied at both the Group and the divisional levels. It is calculated as the difference between operating profit and the cost of capital of average net assets. Alternatively, the value added of the industrial divisions can be determined using the main value drivers of return on sales (quotient of EBIT and revenue) and net assets’ productivity (quotient of revenue and net assets). B.03

During the year 2014, value added amounted to €4.4 billion (2013: €5.9 billion). The quantitative development of value added and the other financial performance measures is explained in the “Profitability” chapter. E see pages 86 f

The use of a combination of return on sales and net assets’ productivity within the context of a strategy of profitable revenue growth provides the basis for positive development of value added. Value added shows the extent to which the Group and its divisions achieve or exceed the minimum return requirements of shareholders and creditors, thus creating additional value.

Profit measure. The measure of operating profit at the divisional level is EBIT, which is calculated before interest and income taxes. EBIT hence reflects the divisions’ profit and loss responsibility. The operating profit measure used at the Group level is net operating profit. It comprises the EBIT of the divisions as well as profit and loss effects for which the divisions are not held responsible. The latter include income taxes and other reconciliation items. B.12 on page 82

B.03

Value added = –x

Profit measure

Cost of capital

Cost ofcapital (%)Net assets

Value added Net assets= – xx

Net assets productivity

Return on sales

Cost ofcapital (%)

Calculation of value added

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Net assets. Net assets represent the basis for the investors’ required return. The industrial divisions are accountable for the net operating assets; all assets, liabilities and provisions which they are responsible for in day­to­day operations are therefore allocated to them. Performance measurement at Daimler Financial Services is on an equity basis, in line with the usual practice in the banking business. Net assets at the Group level include the net operating assets of the industrial divisions and the equity of Daimler Financial Services, as well as assets and liabilities from income taxes and other reconciliation items which cannot be allocated to the divisions. Average annual net assets are calculated from average quarterly net assets. E see page 87

Cost of capital. The required rate of return on net assets, and hence the cost of capital, is derived from the minimum rates of return that investors expect on their invested capital. The cost of capital of the Group and the industrial divisions comprises the cost of equity as well as the costs of debt and pension obli­gations of the industrial business. The expected returns on liquidity and plan assets of the pension funds of the industrial business are considered with the opposite sign. The cost of equity is calculated according to the capital asset pricing model (CAPM), using the interest rate for long­term risk­free secu­rities (such as German government bonds) plus a risk premium reflecting the specific risks of an investment in Daimler shares. While the cost of debt is derived from the required rate of return for obligations entered into by the Group with external lenders, the cost of capital for pension obligations and the anticipated return from plan assets are calculated on the basis of discount rates used in accordance with IFRS. The expected return on liquidity is based on money market interest rates. The Group’s cost of capital is the weighted average of the indi­vidually required or expected rates of return. During the reporting period, the cost of capital amounted to 8% after taxes. For the industrial divisions, the cost of capital amounted to 12% before taxes; for Daimler Financial Services, a cost of equity of 13% before taxes was applied. B.04

Return on sales. As one of the main factors influencing value added, return on sales is of particular importance for assess­ing the industrial divisions’ profitability. The combination of return on sales and net assets’ productivity results in return on net assets (RONA). If RONA exceeds the cost of capital, value is created for our shareholders. The profitability measure for Daimler Financial Services is not return on sales, but return on equity, in line with the usual practice in the banking business.

Key performance indicators. The important financial indicators for measuring our operating financial performance, in addition to EBIT and revenue, are the free cash flow of the industrial business, investment, and research and development expenditure. Along with the indicators of financial perfor­mance, we also use various non­financial indicators to help us manage the Group. Of particular importance in this respect are the unit sales of our automotive divisions, which we use as the basis for our capacity and human resources planning, and workforce numbers.

Furthermore, within the context of our sustainability manage­ment, we use other non­financial indicators such as the CO2 emissions of our vehicle fleet and the energy and water consumption of our production sites. Non­financial indicators are also used to determine the compensation for our Board of Management members. In addition, integrity and compliance are important criteria used in annual goal agreements for our managers, as well as in target­achievement assessments.

Details of the development of non­financial performance indicators can be found in the chapters “Economic Condi­tions and Business Development” and “Sustainability.” E see pages 77 ff and pages 101 ff For “Integrity and Compliance,” E see pages 179 ff

Corporate governance statement

The corporate governance statement to be issued pursuant to Section 289a of the German Commercial Code (HGB) can be viewed on the Internet at w daimler.com/corpgov/en. Pursuant to Section 317 Subsection 2 Sentence 3 of the HGB, the contents of the statement pursuant to Section 289a of the HGB are not included in the audit carried out by the external auditors.

B.04Cost of capital

2014 2013

In percent

Group, after taxes 8 8

Industrial business, before taxes 12 12

Daimler Financial Services, before taxes 13 13