BMW to gain 75% stake in Chinese JV as future looks rosy for foreign car makers
China is starting to relax ownership rules for the world's biggest vehicle market, which is likely to spur BMW to shift more production to China, helping to boost profits
Shenyang —Germany's BMW said it would take majority control of its main China joint venture for €3.6bn, the first such move by a global car maker as Beijing starts to relax ownership rules for the world's biggest vehicle market.
The luxury car maker will lift its stake in its venture with Brilliance China Automotive to 75% from 50%, with the deal closing in 2022 when rules capping foreign ownership for all vehicle ventures are lifted.
The move will likely spur BMW to shift more production to China, helping boost profits amid a whipsawing trade war between Washington and Beijing that has raised the cost of BMW importing cars manufactured at its South Carolina plant.
The deal also marks a milestone for foreign car makers, which have been capped at owning 50% of any China venture and have had to share profits with their local partner.
"We are now embarking on a new era," BMW CEO Harald Kruger said in a speech in the northeast Chinese city of Shenyang where the joint venture is based. He thanked Chinese Premier Li Keqiang who he said had "personally supported" the plan.
Beijing has been keen for global car makers to invest more in China, including easing restrictions that cap foreign ownership of electric vehicles businesses at 50% this year.
As trade tensions have escalated, China's government has also pledged to open up its markets more widely, including cutting taxes on imported vehicles, cancer medicines and a range of consumer goods.
The country's leaders have also played up other milestone deals such as German chemical maker BASF winning approval in July to build China's first wholly foreign-owned chemicals complex.
The rule changes have already helped Tesla gain Beijing's approval for a wholly owned China manufacturing and sales company in Shanghai, marking the first time a foreign car maker will be able to establish a full presence in China without a partner.
"Given the trade dispute between the US and China, there is a powerful incentive for automakers to produce vehicles in the market where they sell them," said independent vehicle-industry analyst James Chao.
He said control of the joint venture could spur BMW to bring production of models like the BMW X4, X5 and X6 sport utility vehicles, which are currently built in the US, to China.
Not brilliant for brilliance
BMW's Hong Kong-listed partner, Brilliance China, which makes the vast majority of its revenue from BMW-branded cars, has seen its shares tumble nearly 50% this year on talk that such a deal was in the offing. The company's shares were suspended on Thursday morning.
BMW said the aim of the move was to increase production capacity at its existing manufacturing sites in Shenyang and expand the localisation of additional models including so-called new energy vehicles.
BMW is one of the biggest exporters of vehicles from the US to China, putting the car maker firmly in the crosshairs of a trade war that has seen both sides raise tariffs on a multitude of goods, including cars.
Kruger said the joint venture, BMW Brilliance Automotive, planned to add a new plant at its site in the city, spending more than €3bn on a large-scale expansion of the existing production facility.
The term of the joint venture is also to be extended to 2040 from 2028, the German car maker said.
Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, said the move would likely spur other global car makers to push for higher ownership of their China ventures, though it remained to be seen how the new structure would work in practice.
"Others will follow over time, but the divorce schedule depends on how strong or capable the local partner is," he said.
A number of car makers, including Mercedes-Benz parent Daimler and Japan's Honda said earlier in 2018 they had no immediate plans to change their China JV stuctures despite the planned rule changes.
In addition to its Brilliance partnership, BMW is also working on a new venture for its Mini brand with China's Great Wall Motor.