Zetsche, 67, a former head of the Mercedes-Benz brand, was due to take a seat as chairman of the board of directors at the Stuttgart-based company after a two-year cooling off period.
In a surprise move, he announced in an interview in Sunday newspaper the Frankfurter Allgemeine Sonntagszeitung that he would renounce his position, breaking a decades-old practice among German companies of promoting board members to directors.
Now Manfred Bischoff, Daimler's current chairman needs to find a new successor candidate before he retires on March 31, 2021.
"This enables Daimler to reorient itself under new management, a step which from our point of view is necessary," Michael Muders, a fund manager at Germany's Union Investment, told Reuters.
Ingo Speich, head of sustainability and corporate governance at Deka Investment, said that given the unresolved questions about Daimler's involvement in a diesel emissions scandal, "the new chairman or chairwoman should be free from conflicts of interest".
Daimler agreed to pay $2.2 billion to resolve a U.S. government diesel emissions investigation and claims from 250,000 U.S. vehicle owners earlier this month.
Zetsche's recusal comes after some investors, including Harris Associates, which owns a 5% stake, spoke out against Zetsche's elevation to the supervisory board. Harris Associates was not immediately available for comment.
Joe Kaeser, the outgoing chief executive of German engineering giant Siemens, who is a member of the Daimler supervisory board, could emerge as a candidate for the chairman role, sources told Reuters on condition of anonymity.
Siemens's ability to placate international shareholders, when its rival General Electric drew criticism for its conglomerate structure and underperforming assets, and Kaeser's openness to Chinese investors, make him a suitable candidate.
Chinese investors Geely [GEELY.UL] and BAIC control almost 20% in Daimler through direct stakes and share options.
Siemens declined to comment. Daimler also declined to comment on succession.
In his newspaper interview, Zetsche said that although Daimler's top investors would have backed him to succeed Bischoff, opposition from other shareholders was likely.
"The fact that after 40 years of work, I am not regarded by some as an asset, but as a burden, I do not need that," Zetsche is quoted as saying.
Ferdinand Dudenhoeffer, who heads the Center for Automotive Research, lamented Zetsche's final exit from the carmaker.
"It's a shame," Dudenhoeffer said, saying Zetsche had led the reinvention of Mercedes-Benz, attracting more youthful buyers and turning it into the best selling luxury car brand. "Where would Daimler be without Zetsche? Nowhere," Dudenhoeffer said.
(Reporting by Ilona Wissenbach, Edward Taylor and Alexander Huebner; Editing by Barbara Lewis)