Smart Automobile Co., a joint venture between Germany’s Mercedes-Benz and China’s biggest private carmaker Zhejiang Geely Holding Group Co., is considering raising funds as part of its plans to revive the iconic minicar as an all-electric brand, according to people familiar with the matter.

Infinity Tyres

Smart could seek about $500 million to $1 billion in fresh funds by selling a minority stake in the venture, the people said, asking not to be identified because the matter is private. A private fundraising deal for Smart, which is currently valued at roughly $5 billion, could attract interest from other carmakers and strategic investment funds, the people said.

The venture will use the proceeds to boost its brand as an electric-vehicle maker, the people said. Plans for Smart’s global lineup to go all-electric were announced in 2018, after having made the switch already in North America.

Mercedes-Benz and Geely, owned by billionaire Li Shufu, formally announced the 5.4 billion-yuan ($849 million) Smart joint-venture, based in Hangzhou Bay, Ningbo, in early 2020. As part of the agreement, Mercedes-Benz designers would style future Smart vehicles and Geely would engineer them. With production based in China, the venture would aim to extend its portfolio of vehicles.

Quirky Model

Mercedes first introduced Smart in Germany in 1998, and brought the quirky brand to the U.S. a decade later, with the initial two-seater model targeting urban buyers squeezed for parking spots. Sitting oddly next to the gleaming high-end S-Class, Smart never met its original global target of 200,000 annual deliveries.

Despite racking up losses, the tiny cars for some years helped Mercedes lower average fleet emissions in line with tightening regulations to even out burgeoning sales of heavy, gas-guzzling models like the GLE. That role has fast diminished since the German manufacturer started rolling out battery-powered models and Chief Executive Officer Ola Kallenius shifted his focus to premium vehicles for better company valuation.

Smart’s considerations with its advisers are at an early stage, and details such as the size of the round could change based on demand, the people said. Representatives for Smart and Mercedes-Benz declined to comment.

Mercedes-Benz’s parent Daimler AG, which counts Geely as one of its biggest shareholders, has lately been betting on China’s young, city-dwelling consumers to rejuvenate the brand in the world’s largest auto market. Still, the Smart joint venture will have to compete with a multitude of established and up-and-coming electric-vehicle makers in China.

Following the spinoff of Daimler’s truck unit in December, the German carmaker is changing its name to Mercedes-Benz Group AG on Tuesday, to signal its segue to a nimble standalone unit tackling the industry’s transformation. Mercedes aims to have battery-powered models in all its segments this year to rival Tesla Inc.

By Manuel Baigorri and Eyk Henning, Bloomberg