BMW to buy control of China venture in 'new era' for foreign carmakers
* BMW to raise stake in Brilliance Auto to 75 pct
* China is set to relax foreign auto ownership rules
* BMW first major carmaker to take control of a China JV
* Deal will close in 2022 when restrictions eased
* JV will spend 3 bln euros expanding Shenyang facility
(Adds comment from Daimler CEO)
By Norihiko Shirouzu
SHENYANG, China, Oct 11 (Reuters) - Germany's BMW
will pay 3.6 billion euros ($4.2 billion) to take control of its
main joint venture in China, 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 said on Thursday it would increase its
stake in its venture with Brilliance China Automotive Holdings
Ltd to 75 percent from 50 percent, with the deal
closing in 2022 when rules capping foreign ownership for all
auto ventures are lifted.
The move will likely spur BMW to shift more production to
China, helping to protect profits amid a whipsawing trade war
between Washington and Beijing that has raised the cost of BMW
importing cars manufactured at its U.S. plant in South Carolina.
The deal also marks a milestone for foreign carmakers which
have been capped at owning 50 percent of any Chinese venture and
have had to share profits with their local partner, and could
encourage rivals such as Mercedes maker Daimler.
"We are now embarking on a new era," BMW Chief Executive
Harald Krueger said in a speech in Shenyang, northeast China,
where the joint venture is based. He thanked Chinese Premier Li
Keqiang, whom he said "personally supported" the plan.
Evercore ISI analyst Arndt Ellinghorst called the deal a
major breakthrough. "In the future, BMW will have the full
control over the biggest regional profit pool of its business,"
Beijing has been keen for global carmakers to invest more in
China and has also eased restrictions that cap foreign ownership
of electric vehicle businesses at 50 percent.
The joint venture plans to add a new plant, spending over 3
billion euros on a large-scale expansion of the existing
production facility, Krueger said.
Yale Zhang, head of Shanghai-based consultancy Automotive
Foresight, said: "Others will follow over time, but the divorce
schedule depends on how strong or capable the local partner is."
Daimler's Chief Executive Dieter Zetsche told Reuters last
week that recent signals from the Chinese authorities were
encouraging, but the German carmaker did not yet have legal
permission to make a move.
"If we do, we need to see what opportunities there are,"
Zetsche said at the Paris Motor Show, adding any steps depended
on talks with BAIC Motor Corp, Daimler's partner in
joint venture Beijing Benz.
As trade tensions have escalated, China's government has
pledged to open up its markets more widely, including cutting
taxes on imported vehicles, cancer medicines and a range of
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
The rule changes have already helped Tesla Inc gain
Beijing's approval for a wholly-owned manufacturing and sales
company in Shanghai, the first time a foreign carmaker will be
able to establish a full presence in China without a partner.
BMW is one of the biggest exporters of vehicles from the
United States to China, putting it firmly in the crosshairs of
the trade war.
"Given the trade dispute between the U.S. and China, there
is a powerful incentive for automakers to produce vehicles in
the market where they sell them," said independent auto 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 United States, to
NOT BRILLIANT FOR BRILLIANCE
But if the move is a big win for BMW, it spells a diminished
role for its Hong Kong-listed partner.
Brilliance, which makes the vast majority of its revenue
from BMW-branded cars, has seen its shares tumble nearly 50
percent this year on talk that such a deal was in the offing.
Its shares were suspended on Thursday.
Brilliance Chairman Qi Yumin lauded the venture's past
success and said the future offered further opportunities, in
comments posted on the firm's WeChat account. He added that
while the situation was complex, the partners would need to
"stick together through thick and thin".
A number of carmakers said earlier this year they had no
immediate plans to change their Chinese joint venture structures
despite the planned rule changes.
But Chinese demand for mass-market passenger cars has
fallen, increasing the dependence of some local players such as
BAIC on income from ventures with premium brands like Daimler.
Industry insiders and analysts fear sales could fall this
year for the first time in decades. China auto sales dropped in
July and August.
BMW finance chief Nicolas Peter, however, said the firm
remained bullish about its top market.
"Number one reason why we invest in China is because we are
absolutely convinced the market has a further growth potential,"
Peter said in an interview at the Shenyang event. He said the
firm was also investing in extra capacity in the United States.
The term of the joint venture will also be extended to 2040
($1 = 0.8642 euros)
(Reporting by Norihiko Shirouzu in Shenyang, Additional
reporting by Edward Taylor in Frankfurt and Yilei Sun and
Gaurika Juneja in Bengaluru; Writing by Adam Jourdan; Editing by
Edwina Gibbs, Georgina Prodhan and Mark Potter)
First Published: 2018-10-11 02:22:31
Updated 2018-10-11 13:33:04
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