BMW to Take Majority Control of its Chinese Joint Venture in $4 Billion Deal
【Summary】Now that the Chinese government is allowing foreign companies to take majority control of their Chinese joint ventures, BMW becomes the first automaker to take advantage of the new rules in a multi-billion dollar deal to take a majority stake in a joint venture with a Chinese company.
SHANGHAI — Now that the Chinese government is allowing foreign companies to take majority control of their Chinese joint ventures, BMW becomes the first automaker to take advantage of the new rules in a multi-billion dollar deal to take a majority stake in a joint venture with a Chinese company.
The German automaker announced on Thursday that it is increasing its stake in its joint venture with Brilliance China Automotive Holding to 75 percent from the previous cap of 50 percent. The move gives BMW more control over its automotive business in China, which is the world's largest auto market.
The German automaker will pay around $4 billion for the additional stake in Brilliance China Automotive Holding the Wall Street Journal reported. The new JV agreement lasts until 2040.
The JV was first founded in May 2003 and its operations include production, R&D, sales, after-sales services and purchasing of BMW vehicles in China.
As part of the deal, the joint venture will significantly expand its manufacturing base in Shenyang, the capital and largest city of China's northeast Liaoning Province, BMW said in a statement on Thursday.
The chance to take a bigger slice of the profits from its China-built cars is especially important for BMW, which has taken a hit from the U.S.-China trade war. The deal will also help BMW lessen the impact of higher tariffs imposed by the Trump administration in a tit-for-tat trade war with China.
"BMW will gain a competitive edge in the China market," said Yale Zhang, managing director of Shanghai consultancy Automotive Foresight to the Wall Street Journal.
In April, China announced an overhaul of regulations governing its auto industry. The previous regulations required foreign automakers to build vehicles in China in a 50/50 joint venture with a Chinese partner, while capping the limit on foreign ownership at 50 percent. The new rules allow foreign companies such as BMW, to take a majority stake or full ownership of their Chinese operations.
Beijing announced the changes just weeks after U.S. Trade Representative Robert Lighthizer published the findings of his investigation into Chinese trade practices. In his report, he criticized joint-venture requirements as "a cornerstone of China's technology transfer regime."
State-run Brilliance, which was founded in 1992, sold about 102,000 vehicles under its own brand in 2017, compared with 387,000 locally built BMWs, and is heavily dependent on revenues from its joint venture with BMW.
Unlike BMW, most foreign automakers, including Ford, General Motors and Volkswagen AG , have said they don't plan to alter their Chinese joint ventures, most of which have been operating for twenty years or more. Many automakers, including General Motors, are locked into long-term contracts with their Chinese partners. GM, for example, has ten joint ventures and two wholly owned foreign enterprises in China.
BMW plans to boost its manufacturing capacity in China and expand local production of new models, including electric vehicles.
China is phasing in the new rules over the next several years, giving priority to producers of so-called ‘new energy vehicles' (NEVs) which include plug-in hybrids and fully electric models. China has set an ambitious goal of putting 5 million electric or plug-in hybrid vehicles on its roads by 2020, as part of Beijing's efforts to fight pollution and reduce reliance on oil imports.
To support this push, foreigners can wholly own companies that build electric cars beginning this year, while restrictions for commercial-vehicle manufacturers will be eased in 2020. Limits for all remaining automakers will be removed in 2022. BMW said the changes to its joint venture would come into effect in 2022, in line with the new regulations.
BMW imported more than 187,000 vehicles into China last year, more than any other auto maker, with many of those vehicles built in the U.S. at BMW's South Carolina assembly plant. BMW announced today that it exported 272,346 BMW X models from the plant in 2017. A large portion of those vehicles were destined for China.
In July, BMW announced a second joint venture with a Chinese automaker, Great Wall Motor Co. to build an electric version of the compact Mini at a new plant in Eastern China. That joint venture will be a 50/50 partnership.
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