Report of the Supervisory Board

Dear Shareholders, the Supervisory Board dealt intensively and extensively with the strategic and operational development of the Daimler Group in seven meetings during the 2015 financial year.

In the year 2015, the Supervisory Board performed its tasks as defined by the law, the Articles of Incorporation and the rules of procedure. It continually advised and supervised the Board of Management on the management of the company. It examined whether the annual company and consolidated financial statements, the combined management report for the Company and the Group, and the other financial reporting were in conformance with the applicable requirements. In addition, it approved numerous business matters for which its consent was required following careful reviews and consultations. Those matters included finance and investment planning, major capital changes at companies of the Group, key individual investments and the conclusion of contracts with particular importance for the Group. The Board of Management informed the Supervisory Board about a large number of other actions and transactions and the two boards discussed those matters together, for example the further development of strategic programs in the various divisions and the status of various cooperation projects. Together with the Board of Management, the Supervisory Board held intensive and detailed discussions on the information and assessments that were material for its decisions and recommendations.

During the reporting period, the Board of Management regularly informed the Supervisory Board about all significant key financials of the Group and the divisions. In addition, it continually provided information to it on all fundamental questions of corporate planning including finance, investment, sales and personnel planning, current developments at the companies of the Group, the development of revenue and the situation of the Company and the divisions. In addition, the Board of Management reported to the Supervisory Board continually on the return on equity and the Group’s liquidity situation, the development of sales and procurement markets, the overall economic situation and developments in the capital markets and in the area of financial services. Additional topics included the further development of the product portfolio, securing the Group’s long-term competitiveness and the ongoing implementation of the measures for safeguarding future-oriented and sustainable mobility. The Supervisory Board also dealt in detail with the development of the share price and the related background as well as the expected impact of strategic projects on the share price.

Daimler continued its profitable growth also in the year under review. The strategy is expressly supported by the Supervisory Board and is being implemented in a disciplined and successful manner. New records were set in 2015 for unit sales, revenue and earnings. Challenges resulting from partially very unfavorable conditions in some markets were more than offset by successes in other regions. The Group’s financial strength and sound balance sheet allow this growth strategy to be continued while paying out an attractive dividend to our shareholders. The model range was further expanded once again last year with competitive products and innovative technologies. Structural adjustments and ongoing efficiency improvements make the business model more robust with regard to short- and long-term changes in the business environment. As a result, we intend to play a role in shaping the significant changes that our industry is expected to go through in the coming years from a position of strength. For this purpose, large volumes of advance expenditure for the future will be made also in the coming years. That includes investment in the core business and the utilization of additional market potential, as well as the development of new technologies, increasing digitization and the development of innovative mobility services.

Cooperation between the Supervisory Board and the Board of Management

The meetings of the Supervisory Board featured open and intensive exchanges of information and opinions. The Supervisory Board arranged an executive session in each of its meetings to be able to discuss topics in the absence of the Board of Management. Participation in the meetings by the members of the Supervisory Board was at a high level in the year 2015, as in the previous years. All members of the Supervisory Board participated in significantly more than half of the meetings of the Supervisory Board and the committees of which they are members in the year under review.

The members of the Supervisory Board regularly prepared for upcoming resolutions on the basis of documentation that had been provided in advance by the Board of Management. They were supported by the relevant committees and intensively discussed the actions and transactions upon which decisions were to be taken with the Board of Management. The members of the Supervisory Board independently attended such courses of training and further training regarded as necessary for the performance of their tasks. In this context, in the meetings of the Supervisory Board and in special training courses, they dealt with issues of fundamental importance for the Group such as the macroeconomic situation of key sales markets, questions of corporate governance and changes in the legal framework, and new products and forward-looking technologies. In addition, the members representing the employees and the members representing the shareholders regularly prepared the Supervisory Board meetings in separate discussions, which were attended by the members of the Board of Management.

The Board of Management informed the Supervisory Board with the use of monthly reports and risk reports about the most important indicators of business development and existing risks, and submitted the interim financial reports to the Supervisory Board. The Supervisory Board was kept fully informed of specific matters also between its meetings. In addition, the Chairman of the Board of Management informed the Chairman of the Supervisory Board in regular discussions about important developments and about those matters that were to be submitted to the Supervisory Board to pass resolutions on or to take note of.

As required in individual cases, for example in cases of special urgency, the members were requested to pass resolutions in writing, following consultation with the Chairman. For the preparation of such proposed resolutions, comprehensive and conclusive documentation was distributed to the members of the Supervisory Board. Furthermore, the members of the Board of Management were available for a bilateral exchange of opinions and to answer any questions.

Topics dealt with by the Supervisory Board in the year 2015

In a meeting attended by the external auditors in early February 2015, the preliminary key figures of the annual company and consolidated financial statements for 2014 and the dividend proposal to be made at the 2015 Annual Shareholders’ Meeting were discussed. The preliminary key figures for the year 2014 and the proposal on the appropriation of profit were announced at the Annual Press Conference on February 5, 2015.

In the Supervisory Board meeting held on February 13, 2015, the Supervisory Board first decided on the personnel changes in the Board of Management described as below. Subsequently, it dealt with the annual company financial statements, the annual consolidated financial statements and the combined management report for Daimler AG and the Daimler Group for the year 2014, each of which had been issued with an unqualified audit opinion by the external auditors, as well as with the reports of the Audit Committee and the Supervisory Board, the corporate governance report, the remuneration report and the proposal on the appropriation of profit. In preparation, the members of the Supervisory Board were provided with comprehensive documentation. The Audit Committee and the Supervisory Board dealt with those documents in detail and discussed them intensively in the presence of the external auditors, who reported on the results of their audit and were available to answer supplementary questions and to provide further information. Following the final results of the review by the Audit Committee and its own review, the Supervisory Board declared its agreement with the results of the audit carried out by the external auditors. It determined that no objections were to be raised and approved the financial statements and the combined management report as presented by the Board of Management. The company financial statements of Daimler AG for the year 2014 were thereby adopted. On this basis, the Supervisory Board consented to the proposal made by the Board of Management on the appropriation of distributable profit. In addition, the Supervisory Board approved the report of the Supervisory Board, the corporate governance report and the remuneration report, as well as its proposed decisions on the items of the agenda for the 2015 Annual Shareholders’ Meeting.

Also in the meeting on February 13, 2015, the Supervisory Board received detailed information on the strategy for information security at Daimler. This included the question of how the Group’s different IT systems identify and repel attacks by hackers. The Supervisory Board also discussed the current status of the most important legal proceedings such as the arbitration proceedings with regard to Toll Collect or the EU antitrust proceedings against truck manufacturers. After that, the Supervisory Board discussed the results of the efficiency audit carried out in 2014, which once again confirmed the very good and constructive cooperation within the Supervisory Board and with the Board of Management. Suggestions for the further optimization of the cooperation were effectively acted upon and implemented during the year.

Subsequently, the Supervisory Board dealt with questions of corporate governance and the subject of Board of Management remuneration. In addition, approval was granted for the other board memberships and sideline activities of the members of the Board of Management that were presented in the meeting.

One of the items on the agenda of the Annual Shareholders’ Meeting held on April 1, 2015 was the reelection of Dr. Paul Achleitner as a member of the Supervisory Board representing the shareholders. After he was elected by the Annual Shareholders’ Meeting, the Supervisory Board reelected Dr. Paul Achleitner as a member of the Nomination Committee.

In another meeting at the end of April 2015, the Supervisory Board dealt with the various aspects of the subject of sustainability and its importance for the Group. The detailed discussion covered the development of resource consumption and improved energy efficiency in production, the sustainable further development of the product portfolio and the implementation of integrity at the Group, as well as the legal and ethical questions arising in the context of autonomous driving. Subsequently, the Supervisory Board received information on the status of the strategic cooperation with Renault-Nissan with regard to the expansion of the Mercedes-Benz product portfolio. Specific details were discussed of the project to offer in the future a Mercedes-Benz pickup with the brand’s typical vehicle attributes of safety, comfort and high quality. In addition, the Supervisory Board discussed the strategy of the worldwide service and spare-parts organization. Furthermore, the Supervisory Board was occupied with the contents and possible legal consequences for the Company of antitrust proceedings, as well as the proportion of women in the Supervisory Board and the Board of Management in the context of corporate governance topics. The background was legislation for equal participation of women and men in management positions, which came into force in May 2015. For the composition of the Board of Management, the Supervisory Board decided on a target for the proportion of women of 12.5 %, in line with the status quo, which is to apply until December 31, 2016.

Following discussion of the course of business and the results of the first half of 2015, in its meeting in July, the Supervisory Board received detailed information on the business development of Daimler Financial Services worldwide and in particular in China, and subsequently approved a capital increase at Mercedes-Benz Bank AG. The Supervisory Board also dealt with the planned “Mercedes-Benz Stadium” sponsoring project as an advertising and communication platform at the new location of Mercedes-Benz USA in Atlanta, and approved the project. Subsequently, the Supervisory Board received detailed information on the planned joint acquisition of the HERE digital mapping business from Nokia Corporation by Daimler, Audi and BMW. Through the joint acquisition of HERE, it is intended to create an open, independent and value-adding platform for cloud-based maps and mobility services. The Supervisory Board approved the project in written circulated form in late July 2015.

Furthermore, in a joint meeting with the advisory board for integrity and corporate responsibility, the Supervisory Board dealt with, amongst other things, the Group’s role in the field of sustainability. The participants in the meeting discussed the Group’s international standards relating to working conditions, the promotion of human rights and possibilities of making a positive contribution to the development of society in certain regions, as well as the Group’s sustainability communication.

During a two-day strategy workshop at the Mercedes-Benz plant in Sindelfingen in the fall of 2015, the Supervisory Board was first informed, in connection with recent events, about the impact of the emissions issue on a competitor in the German automotive industry. In that context, the Supervisory Board received a detailed presentation of the current situation in all of the Group’s automotive divisions, and ascertained that no so-called defeat devices, which non-permissibly restrict the effectiveness of exhaust-gas aftertreatment, are used or have been used at Daimler.

Subsequently, the Supervisory Board received information on the strategic goals of Daimler AG and the divisions, as well as on the stage of their implementation so far. The starting point was an assessment of the markets and the automotive environment in the year 2025. The Supervisory Board dealt in detail with the expected changes in structural conditions and risks. Important points for discussion included the subjects of the mobility of the future, connectivity and the digitization of processes and systems along the entire value chain. After that, the Supervisory Board discussed the key financial figures and goals for the Group and the divisions. Other focuses of the annual strategy meeting were the development of the Chinese and Brazilian economies and the prospects for Daimler in those two markets.

After that, the Supervisory Board experienced numerous of the Group’s topics for the future first hand under the heading of “Objectives and digital transformation.” The heads of specialist departments used market stalls and exhibits to give the members of the Supervisory Board and the Board of Management direct insights into new products and technologies, such as “Industry 4.0,” “Transport systems of the future from Mercedes-Benz Vans” and “Communication in the digital world.”

The Supervisory Board was also informed about the preventive measures taken by the Group in connection with antitrust-law compliance and about the most important initiatives for the creation of a future-oriented sales and marketing organization for Mercedes-Benz Cars. Other items on the agenda were the development of legislative conditions for the continuous reduction of CO2 emissions and the ongoing development of alternative drive systems at Daimler.

Furthermore, the members of the Supervisory Board representing the shareholders decided on October 1, 2015, on the basis of recommendations by the members of the Nomination Committee, to propose to the Annual Shareholders’ Meeting that Dr. Manfred Bischoff and Petraea Heynike be reelected to the Supervisory Board with effect as of the end of the Annual Shareholders’ Meeting held on April 6, 2016 and until the end of the Annual Shareholders’ Meeting that decides on ratification of their actions in the year 2020.

At the beginning of the meeting held in December 2015, the members of the Supervisory Board were occupied in the context of a vehicle presentation with new vehicle models, design studies and future-oriented technologies. Subsequently, the Supervisory Board dealt with the departure of Dr. Christine Hohmann-Dennhardt and the appointment of Renata Jungo Brüngger to the Board of Management. In the further course of the meeting, the Supervisory Board dealt in detail on the basis of comprehensive documentation with the operational planning for the years 2016 and 2017. This included discussion of existing opportunities and risks as well as the Group’s risk management. In addition, the Supervisory Board approved the capital increase for a company of the Group in Brazil as well as a contribution to the German pension fund assets. The Supervisory Board was also informed about the planned expansion of transmission production at an existing Daimler facility in Romania, and approved that project.

Other topics dealt with in the December meeting were corporate governance and Board of Management remuneration in light of the recommendations of the German Corporate Governance Code. Finally, the Supervisory Board dealt with the probable main topics of the year 2016. Following the meeting of the Supervisory Board in December, the members of the Supervisory Board received information on the current stage of legislative developments in this field in the context of an optional corporate governance session.

Corporate governance

During the year 2015, the Supervisory Board was continually occupied with standards of good corporate governance.

The members of the Supervisory Board of Daimler AG are obliged to disclose conflicts of interest – especially those that might arise due to an advisory or board function for a customer, supplier or creditor of Daimler or for other third parties – to the entire Supervisory Board. In fulfilment of the relevant recommendations of the German Corporate Governance Code, the Supervisory Board provides information on any conflicts of interest that occur and on how they have been dealt with in its report to the Annual Shareholders’ Meeting. There were no indications of any actual or potential conflicts of interest in 2015.

The Supervisory Board is convinced that effective work in the Supervisory Board in terms of good corporate governance requires two things: On the one hand, its members must have high levels of specialist expertise. On the other hand, diversity amongst the members in terms of internationality, gender, experience and cultural background must reflect the Group’s size and internationality. Both of these requirements are fulfilled at Daimler.

For supervisory boards subject to parity codetermination, like that of Daimler AG, legislation for equal participation by women and men in executive positions prescribes a binding gender ratio of at least 30 % women to be implemented in the context of new appointments as of 2016. The ratio is to apply to the entire supervisory board. If the side of the supervisory board representing the shareholders or the side representing the employees objects to the chairman of the supervisory board about the application of the ratio to the entire supervisory board, the minimum ratio is to apply separately to the shareholders’ side and to the employees’ side for that election.

In the Supervisory Board of Daimler AG, the proportion of 30 % women is fulfilled on the shareholder side as of December 31, 2015 by the members Sari Baldauf, Andrea Jung and Petraea Heynike. On the employee side, the proportion of women as of that date is 20 % with Dr. Sabine Maaßen and Elke Tönjes-Werner. In its meeting on October 1, 2015, the Supervisory Board dealt with the specific proposals for candidates for election to be made at the Annual Shareholders’ Meeting in 2016, and, against this backdrop, stated that the shareholder side and employee side should separately achieve the legally prescribed proportion of women. The members representing the shareholders stated that they object to the overall fulfilment of the statutory gender quota. Subsequently, the Supervisory Board decided to propose the reelection to the Supervisory Board of Dr. Manfred Bischoff and Petraea Heynike at the Annual Shareholders’ Meeting in 2016. In the case that they are elected, the statutory gender ratio will continue to be fulfilled on the shareholder side. The next election to the Supervisory Board of members representing the employees will take place in 2018.

The Supervisory Board also recognizes the importance for the composition of the Supervisory Board of an age limit and a rule limiting the period of membership.

Therefore, in connection with its decision to propose the reelection to the Supervisory Board of Dr. Manfred Bischoff as a member representing the shareholders at the Annual Shareholders’ Meeting in 2016, the Supervisory Board also dealt with the age limit for members, which is anchored in the rules of procedure of the Supervisory Board in fulfilment of the corresponding recommendation of the German Corporate Governance Code. Accordingly, candidates are generally to be proposed for election to the Supervisory Board for a full period of office only if they are not older than 72 years at the time of the election.

When it set this age limit, the Supervisory Board deliberately decided against a strict age limit and in favor of a flexible rule allowing the required scope for the appropriate assessment of the circumstances of each individual case. The decision of the Supervisory Board to propose to the Annual Shareholders’ Meeting the reelection to the Supervisory Board of Dr. Manfred Bischoff for another full period of office was based, amongst other things, on the very positive assessment of his service by the other members, on the successful and constructive-critical cooperation with the Board of Management, and on giving a signal of stability and continuity. Furthermore, the election proposal is intended to maintain the composition of the Supervisory Board with regard to the various areas of expertise of its members and to ensure a balanced age structure. All other members of the Supervisory Board had not yet reached the age limit at the time of their election. This applies also to Ms. Heynike, who will also be proposed for reelection at the Annual Shareholders’ Meeting in 2016.

In its meeting in December, the Supervisory Board updated the rules of procedure of the Supervisory Board and its committees and decided on a limitation on the period of office in the Supervisory Board in line with the new recommendation of the German Corporate Governance Code of May 5, 2015. This means that only such candidates are now generally to be elected to the Supervisory Board for a full period of office that have not already been members of the Supervisory Board for three full statutory periods of office at the time of the election.

Also in December, the Supervisory Board approved the 2015 declaration of compliance with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG). With the exceptions explained in the declaration, all the recommendations of the Code have been complied with and continue to be complied with.

Corporate governance at Daimler is described in detail in the Corporate Governance Report and in the Remuneration Report.

Report on the work of the committees

Presidential Committee

The Presidential Committee convened six times last year. It dealt primarily with corporate governance topics and questions of remuneration, as well as with personnel matters of the Board of Management. As in previous years, compliance targets constituted part of the individual target agreements of the members of the Board of Management. Once again, additional non-financial targets were also included as criteria in the target agreements. For the past financial year, they were the further development and permanent establishment of integrity, diversity, the maintenance and enhancement of a high level of employee satisfaction, and high product quality.

Audit Committee

The Audit Committee met six times in 2015. Details of those meetings are provided in the Report of the Audit Committee.

Nomination Committee

The members of the Nomination Committee prepared a recommendation for the Supervisory Board’s proposal to the Annual Shareholders’ Meeting in 2016 on the candidates for election to the Supervisory Board. The proposal on the reelection of Dr. Manfred Bischoff and Petraea Heynike take into consideration, apart from the qualifications defined for each position, the recommendations of the German Corporate Governance Code. The Nomination Committee had already announced in 2014 that it would recommend the reelection of Dr. Paul Achleitner to the Supervisory Board at the Annual Shareholders’ Meeting in 2015.

Mediation Committee

As in previous years, the Mediation Committee, a body required by the provisions of the German Codetermination Act (MitbestG), had no occasion to take any action in 2015.

The chairmen of the committees informed the members of the Supervisory Board about the activities of the committees and their decisions, in each case in the Supervisory Board meeting following those decisions.

Personnel changes in the Supervisory Board

With effect as of January 1, 2015, Michael Bettag was appointed by the court to the Supervisory Board as a member representing the employees, after Jürgen Langer had stepped down from the Supervisory Board as of December 31, 2014.

On April 1, 2015, the Annual Shareholders’ Meeting elected Dr. Paul Achleitner as a member of the Supervisory Board representing the shareholders until the end of the Annual Shareholders’ Meeting that decides on ratification of the actions for the year 2019. The election proposal made by the Supervisory Board to the Annual Shareholders’ Meeting was based on a recommendation made by the Nomination Committee.

On November 4, 2015, Roman Zitzelsberger was appointed by the court to the Supervisory Board as a member representing the employees, after Jörg Hofmann had stepped down from the Supervisory Board as of October 31, 2015.

Personnel changes in the Board of Management

In the Supervisory Board meeting on February 13, 2015, the appointment of Hubertus Troska as a member of the Board of Management of Daimler AG with responsibility for Greater China was extended for another five years as of January 1, 2016.

The appointment of Dr. Christine Hohmann-Dennhardt as a member of the Board of Management ended on December 31, 2015. Dr. Hohmann-Dennhardt became a member of the board of management of Volkswagen AG as of January 1, 2016.

In its meeting on December 9, 2015, the Supervisory Board appointed Renata Jungo Brüngger as a member of the Board of Management of Daimler AG with responsibility for Integrity and Legal Affairs for a period of three years as of January 1, 2016.

In the Supervisory Board meeting on February 16, 2016, Dr. Dieter Zetsche was reappointed as the Chairman of the Board of Management and Head of Mercedes-Benz Cars for a further three years as of January 1, 2017. In addition, the Supervisory Board decided in this meeting to assign Board of Management responsibility for Group Research & Mercedes-Benz Cars Development to Ola Källenius as of January 1, 2017. He will thus succeed to Professor Dr. Thomas Weber, who will step down from his position as a member of the Board of Management of Daimler AG after 14 years when his contract expires on December 31, 2016.

Audit of the 2015 company and consolidated financial statements

The financial statements of Daimler AG and the combined management report for the Company and the Group for 2015 were duly audited by KPMG AG, Wirtschaftsprüfungsgesellschaft, Berlin, and were given an unqualified audit opinion. The same applies to the consolidated financial statements for 2015 prepared according to IFRS.

In a meeting in early February 2016 attended by the external auditors, the Supervisory Board discussed the preliminary key figures of the annual company and consolidated financial statements for 2015 and the dividend proposal to be made at the 2016 Annual Shareholders’ Meeting. The preliminary key figures for the year 2015 were announced at the Annual Press Conference on February 4, 2016.

In the meeting on February 16, 2016, the Supervisory Board dealt with the annual company financial statements, the annual consolidated financial statements and the combined management report for Daimler AG and the Daimler Group, each of which had been issued with an unqualified audit opinion by the external auditors, as well as with the reports of the Audit Committee and the Supervisory Board, the corporate governance report, the remuneration report and the proposal on the appropriation of profit. In preparation, the members of the Supervisory Board had been provided with comprehensive documentation including the Annual Report with the consolidated financial statements according to IFRS, the combined management report for Daimler AG and the Daimler Group, the corporate governance report and the remuneration report, the annual company financial statements of Daimler AG, the proposal of the Board of Management on the appropriation of profit, the audit reports of KPMG on the annual company financial statements of Daimler AG and the consolidated financial statements, each including the combined management report, as well as drafts of the reports of the Supervisory Board and of the Audit Committee.

The Audit Committee and the Supervisory Board dealt with those documents in detail and discussed them intensively in the presence of the responsible external auditors, who reported on the results of their audit and were available to answer supplementary questions and to provide additional information. Following the final results of the review by the Audit Committee and its own review, the Supervisory Board declared its agreement with the results of the audit by the external auditors; it determined that no objections were to be raised and approved the financial statements and the combined management report as presented by the Board of Management. The company financial statements of Daimler AG for the year 2015 were thereby adopted. On this basis, the Supervisory Board consented to the proposal made by the Board of Management on the appropriation of distributable profit. Furthermore, it approved the report of the Supervisory Board, the corporate governance report and the remuneration report, as well as its own proposed decisions on the items of the agenda for the 2016 Annual Shareholders’ Meeting.

Appreciation

The Supervisory Board warmly thanks all of the employees and the management of the Daimler Group for their committed contributions to the successful year 2015. Special thanks are due to Jörg Hofmann, who closely accompanied the Group since 2008 with strong commitment and stepped down from the Supervisory Board as of October 31, 2015. The Supervisory Board also thanks Dr. Christine Hohmann-Dennhardt for the very good work she did for Daimler AG.

Stuttgart, February 2016

The Supervisory Board

Dr. Manfred Bischoff
Chairman

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