Daimler AG (OTCMKTS:DDAIF) (ETR:DAI)’s Mercedes-AMG GmbH division, the world’s third largest luxury car maker, has agreed to supply V8 engines for future models of Aston Martin Logonda Ltd and in return will receive a 5% stake in the British firm, the two companies announced on Thursday.

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Daimler to gain stake in multiple steps

Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) will gain the 5% stake in multiple steps, based on the progress of the technical collaboration, under the non-cash transaction. The deal is expected to be finalized by the end of this year. Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) will have a non-voting stake in Aston Martin, a company that rose to fame in 1963 after it was featured in James Bond movies.

The announcement comes just about three months after Italian private equity firm Investindustrial completed the acquisition of a 37.5% stake in Aston Martin for $241 million. Investindustrial outbid India’s Mahindra & Mahindra to win the stake. The Italian private equity firm will play a key role in the new product development program worth more than 500 million pounds. Investment Dar had acquired the Gaydon, Warwickshire-based luxury car maker in 2007 from Ford Motor Company (NYSE:F). Another large shareholder of Aston Martin is Adeem Investment Co. of Kuwait.

Will Daimler replace Ford?

The agreement with Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) will help the British company compete with the likes of the Jaguar Land Rover, which is owned by India’s Tata Motors, and Volkswagen AG (OTCMKTS:VLKAY) (ETR:VOW) (FRA:VOW)’s Porsche and Bentley cars, says Rhys Jones of Reuters. Daimler AG (OTCMKTS:DDAIF) (ETR:DAI)’s Mercedes-Benz unit will also supply electronic components to Aston Martin. The British company currently has an engine supply agreement with Ford Motor Company (NYSE:F), which manufactures V8 and V12 engines at its Cologne plant in Germany. The deal with Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) could replace Ford Motor Company (NYSE:F).

Aston Martin has been struggling since the 2008 financial crisis. In FY 2012, the company posted a 9% decline in earnings as sales plunged about 10% to 3,800 units. Meanwhile, Jaguar Land Rover has spent about $800 million since 2008 to strengthen its presence in emerging market, especially China.

Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) doesn’t have a luxury brand to compete with BMW’s Rolls Royce or Volkswagen AG (OTCMKTS:VLKAY) (ETR:VOW) (FRA:VOW)’s Bentley. So, the deal is expected to give the company an observer status, along with 5% stake in Aston Martin.

American shares of Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) were up 0.57% to $70.89 at 1:27 PM EDT.