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SHENYANG, China: Germany's BMW will pay 3.6 billion euros (US$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% from 50%, 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% 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,” he wrote.
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%.
The joint venture plans to add a new plant, spending over three 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 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 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 China.
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% 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 from 2028.
DETROIT, Oct 3 ― Major automakers yesterday posted a hefty drop in US new vehicle sales for September, caused in part by a decline in sales in areas hit by Hurricane Florence and a tough comparison to the previous September when consumers rushed…
Fundamental outlook THE US policymakers increased the Federal Reserve by 25 basis points (bps) and has indicated that another hike is possible before year-end. American GDP grew 4.2 per cent. The money supply slowed down in the eurozone and consumer prices slide. UK hit a stonewall on the European Union (EU) and Brexit negotiations. It […]
KUCHING: The auto sector’s total industry Volume (TIV) saw a 27 per cent jump to 65,600 units in August 2018 as analysts believe consumers took advantage of the final month with zero-rated Goods and Services Tax (GST). The team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) said with consumers taking advantage of cheaper cars […]
PETALING JAYA: The automotive industry recorded its second highest monthly total industry volume (TIV) last month with 68,465 units sold, said the Malaysian Automotive Association (MAA).
The association said in a statement yesterday that the sales performance was driven by reduction in prices due to the zero-rated goods and services tax (GST).
“At 68,465 units, the sales volume in July 2018 was the second highest monthly TIV achieved in the history of the local automotive industry. The highest monthly TIV achieved by the industry was 69,371 units in December 2015,” it said.
The sales volume in July was 6% or 3,963 units higher than June 2018. On a year-on-year basis, the sales volume was 41% or 19,912 units higher than July 2017 when 48,553 units were sold.
A total of 358,179 units were sold during the first seven months of the year compared with 333,006 units during the same period last year.
MAA said the sales volume for August 2018 is expected to be maintained at July 2018 level, also driven by the reduction in prices due to zero rated GST.
Malaysians are currently enjoying a tax holiday, which started on June 1 with the zero-rating of GST. The Sales and Services Tax (SST) is only making a comeback on Sept 1.
In terms of production, a total of 55,164 units were recorded in July 2018 compared with 43,952 units a year ago. Year-to-date, a total of 336,111 units were recorded compared with 299,270 units during the same period last year.
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