Now that China has relaxed its joint-ownership mandates, BMW has announced that it will procure a majority stake in its venture with Brilliance Automotive. The German firm will be the first foreign automaker to have majority control of its business in the region.
Being first will not come cheaply, however. It will cost BMW $4.2 billion to assume control with a majority stake of 75 percent of the business — albeit as part of a larger deal. All the manufacturer has to do is come up with the funds and wait until 2022, when rules limiting foreign ownership for all Chinese auto ventures are officially lifted.
BMW has said that both partners have signed a corresponding agreement, but noted that the transaction is still subject to the approval of the relevant authorities and the consent of the Brilliance China Automotive Holdings Ltd Shareholders’ Meeting.
The plan also extends the cooperative contract that makes BMW Brilliance Automotive (BBA) possible through 2040 and includes investments into new and existing plant structures in Shenyang (where Brilliance is currently headquartered) over the coming years. At least one new facility is expected following the deal’s ratification, with additional cash going into modernizing older factories.
“We are now embarking on a new era,” BMW CEO Harald Krueger said during the plan’s announcement. According to Reuters, he also thanked Chinese Premier Li Keqiang, whom he said “personally supported” the arrangement.
With both the United States and China looking as if they are going to continue escalating auto tariffs against each other, The People’s Republic may have been left with little recourse. It’s already procured access to Western tech and secured longterm investments since becoming the world’s largest auto market. Foreign automakers have also wanted more control of Chinese operations ever since they started doing business within the country.
Everyone expects other manufacturers to follow suit. Daimler boss Dieter Zetsche told Reuters last week that signals from the Chinese authorities were encouraging. However, Dr. Z noted that Mercedes-Benz did not yet have legal permission to make any financial moves that would allow it to buy out BAIC Motor and take majority control of Beijing Benz.
“If we do, we need to see what opportunities there are,” Zetsche said at the Paris Motor Show.
Such an arrangement is also likely to help automakers cope with China’s dwindling demand for luxury vehicles. BMW has been among the hardest hit, since it ships its most popular SUVs from its U.S. plant in Spartanburg to China. Those vehicles have been subjected to several suspicious “customs investigations” and slapped with exceptionally high retaliatory tariffs.
“[The] number one reason why we invest in China is because we are absolutely convinced the market has a further growth potential,” explained BMW finance chief Nicolas Peter. He also said the company would be investing in extra capacity for the United States, which is not considered a growth market.
Our hot take? The trade war has made it so that it only pays to build where you sell.