BMW to gain control of China venture for $5.7b in milestone deal

Germany's BMW said it will take majority control of its main China joint venture for €3.6 billion (S$5.7 billion), the first such move by a global carmaker as Beijing starts to relax ownership rules for the world's biggest auto market.

The luxury carmaker will raise its stake in its venture with Brilliance China Automotive Holdings to 75 per cent, from 50 per cent, it said in a statement.

The deal will close in 2022 when rules capping foreign ownership are lifted.

The move should give BMW the confidence to shift more production to China, boosting profits amid a whipsawing trade war between Washington and Beijing that has raised the cost of imports.

The deal also marks a milestone for foreign carmakers, which have been capped at owning 50 per cent of any China venture and have had to share profits with their local partners.

"We are now embarking on a new era," BMW chief executive Harald Kruger said at an event in the north-east Chinese city of Shenyang yesterday. He thanked Chinese Premier Li Keqiang, who he said had "personally supported" the plan.

Beijing has been keen for global carmakers to invest more in China.

It is also easing restrictions that cap foreign ownership of electric-vehicles businesses at 50 per cent this year.

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 carmaker will be able to establish a full presence in China without a partner.

Said independent auto industry analyst James Chao: "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."

He said control of the joint venture could spur BMW to bring production of models such as the BMW X4, X5 and X6 sport utility vehicles, which are currently built in the United States, to China.

BMW is one of the biggest exporters of vehicles from the United States to China, putting the carmaker firmly in the crosshairs of a trade war that has seen both sides raise tariffs on a multitude of goods, including automobiles.

Mr Kruger said in Shenyang that the joint venture planned to add a new plant at its site in the city, spending more than €3 billion 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 automaker said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 12, 2018, with the headline 'BMW to gain control of China venture for $5.7b in milestone deal'. Print Edition | Subscribe