By William Boston 

BERLIN -- China's state-owned Beijing Automotive Group Ltd has acquired a stake of 2.48% in Daimler AG with an option to raise it to 5%, bringing Chinese ownership of one of Germany's flagship companies to around 15%.

BAIC, which is Daimler's Chinese joint venture partner, announced the deal on Tuesday, saying it would strengthen the longstanding alliance known as Beijing Benz Automotive Group Co.

But the news could reignite fears of Chinese incursions into core European industries. Chinese billionaire Li Shufu already owns 9.7% of Daimler through his Zhejiang Geely Holding Group, which owns Volvo Cars, the Swedish brand.

"In our view this partnership is exemplary for the successful cooperation between a Chinese and German company," said BAIC Chairman Heyi Xu in a statement. "It can serve as a model for other companies from both countries."

Daimler's closer ties with China could also raise concern in the U.S., where the Trump administration is locked in a tug of war with Beijing aimed at extracting a more advantageous trade agreement between the two countries. The German luxury car maker not only sells cars in the U.S. but also operates a big manufacturing plant in Tuscaloosa, AL.

Under rules adopted last December, Berlin can veto any acquisition by a non-European buyer of a more-than 10% stake in a German company across sectors ranging from energy to telecommunications, technology, defense, finance, transportation and the media.

And under a broader industry policy strategy announced in February, the government said it would prepare legislation allowing it to take significant stakes in German companies to protect them from foreign takeovers.

Germany's leading car makers, which also include Volkswagen AG and BMW AG, are among the country's flagship companies. But all have suffered lately amid slowing global and domestic demand, the reputational fallout from a four-year-old diesel emission scandal, and high costs associated with the industry's shift to electric vehicles.

Daimler Chief Executive Ola Källenius welcomed the investment on Tuesday.

"This step solidifies our successful partnership," he said in a statement. "The Chinese market is and remains a decisive pillar of our success -- not only in terms of revenue but also for our development and production."

With the investment, BAIC becomes Daimler's third-largest individual shareholder after Mr. Li's Geely Holding Group and the Kuwaiti Investment Authority, which holds 6.8% of the company.

Daimler shares rose around 5% on the news, and were trading at EUR48.26 at 1 p.m. local time.

Daimler stunned markets on July 12 with its second profit warning in a month, blaming higher-than-expected costs related to a recall of Takata air bags and ongoing proceedings related to its diesel vehicles.

Daimler took a EUR3.1 billion ($3.48 billion) charge against second-quarter earnings and reported a quarterly loss before interest and taxes of EUR1.6 billion after a EUR2.6 billion profit a year ago.

The Stuttgart-based auto maker is due to present its full second-quarter earnings on Wednesday.

BAIC, with annual revenue of around EUR62 billion, holds a 51% stake in the Beijing Benz venture, Daimler holds the remaining shares. In the first stage of the transaction, BAIC acquired 2.48% in Daimler through its investment company Investment Global Co. Ltd. BAIC also retained an option to purchase an additional 2.52% of Daimler.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

July 23, 2019 08:23 ET (12:23 GMT)