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* Chip shortage seen hurting sales in first quarter
* Daimler's race to go electric could pick up speed
* Company plans to spin-off its Daimler Truck business
* Shares climb on Daimler outlook(Adds CEO comments on chip shortage)
By Nick Carey
LONDON, Feb 18 (Reuters) - Daimler AG expectssignificant improvements in sales and operating profit in 2021and will make up for lost production caused by a semiconductorchip shortage by the end of the year, the German carmaker saidon Thursday.
The outlook sent shares in the maker of Mercedes-Benz carsup 2.5% in early trading.
Bottlenecks causing a shortage of semiconductor chips willreduce its sales mostly in the first quarter, Daimler said. Muchof the auto industry has struggled to maintain production levelsbecause of the chip shortage.
Chief Executive Ola Källenius said during a video conferencethat Daimler expects chip supply to improve in the secondquarter.
He said Daimler had made its sales expectations clear to itssuppliers, but did not find out until Dec. 31 that it would facea shortage in the first quarter.
The automaker also confirmed its preliminary financialresults for 2020, said economic conditions in major marketsshould return to normal in 2021 and that it did not expectfurther setbacks as a result of the pandemic.
In common with rivals, Daimler is racing to bring moreelectrified models to market to meet tightening CO2 emissionsstandards in Europe and China.
CEO Källenius said that sales of electric vehicles in 2021could double as a percentage of Daimler's overall sales.
Sales of plug-in hybrids and fully-electric vehicles made up7.4% of Mercedes-Benz car sales in 2020, up from 2% in 2019.
Following cost savings and a faster-than-expected recoveryin the auto sector, Daimler said last month its group earningsbefore interest and taxes (EBIT) for 2020 came to 6.60 billioneuros ($7.95 billion).
This month, it said it planned to spin off Daimler Truck,the world's largest truck and bus maker, as it seeks to increaseits investor appeal as a focused electric, luxury car business.
CHINA'S 'REMARKABLE RECOVERY'
Daimler ended 2020 with adjusted free cash flow of 9.2billion euros versus 2.7 billion a year earlier.
Plant shutdowns in the first half of 2020 to slow the spreadof the novel coronavirus led many in the industry to expect adisastrous year, but a market rebound spurred by China helpedthe industry recover faster than expected.
Like its German rivals BMW and Volkswagen AG, Daimler benefited from Chinese demand forhigh-margin luxury vehicles.
"China had a remarkable recovery," Källenius said.
Mercedes-Benz sales in China jumped more than 22% in thefourth quarter and 11.7% for 2020 as a whole.
While Daimler said it expected its premium car business toincrease more than 7.5% in 2021, it expected its sales in Chinathis year to grow at a slower pace of between 2% to 7.5%.
Group revenue and operating profit for 2021, it expected torise more than 7.5%, with an adjusted margin from its Mercedescars and van business of between 8% and 10%.($1 = 0.8304 euros)(Reporting By Nick Carey; Editing by Kim Coghill, Keith Weirand Barbara Lewis)