BMW will gain control of China in a new era for foreign builders

SHENYANG, China (Reuters) – BMW (Germany)BMWG.DE) will spend 3.6 billion euros to take control of its main joint venture in China, the first of its kind by a global car manufacturer as Beijing began to relax the ownership rules of the largest automotive market in the world. world.

The luxury automaker announced Thursday it would increase its stake in the partnership with Brilliance China Automotive Holdings Ltd (1114.HK) at 50% to 50%, the agreement being concluded in 2022 when the rules limiting foreign ownership to all car companies are lifted.

This decision will likely incite BMW to shift more production to China, thereby helping to protect profits in the context of a blistering trade war between Washington and Beijing, which has resulted in an increase in the cost of BMW import cars manufactured in its US factory. Caroline from the south.

This agreement also marks a milestone for foreign car manufacturers, which were limited to 50% of any Chinese company and had to share their profits with their local partner and could encourage competitors such as the Mercedes Daimler manufacturer (DAIGn.DE).

"We are entering a new era now," said BMW President Harald Krueger in a speech in Shenyang, northeastern China, where the joint venture is located. He thanked Chinese Premier Li Keqiang, who would have personally supported the plan.

Arndt Ellinghorst, an analyst at Evercore ISI, described the deal as a major breakthrough. "In the future, BMW will have full control of the largest regional profit pool in its business," he wrote.

Beijing wants global automakers to invest more in China and has also eased restrictions on foreign participation in the electric vehicle sector by 50 percent.

The joint venture plans to add a new plant, spending more than 3 billion euros for large scale expansion of existing production facilities, said Krueger.

Yale Zhang, head of the Shanghai-based Automotive Foresight consulting firm, said, "Others will follow in time, but the timing of divorce depends on the strength or capacity of the local partner."

Daimler chief executive Dieter Zetsche told Reuters last week that recent signals from the Chinese authorities were encouraging, but that the German automaker did not yet have legal permission to make a decision.

"If we do, we have to see what the opportunities are," Zetsche told the Auto World, adding that any milestones depended on discussions with BAIC Motor Corp. (1958.HK), Daimler's partner in the Beijing Benz joint venture.

Faced with the intensification of trade tensions, the Chinese government is committed to further opening its markets, notably by reducing taxes on imported vehicles, anti-cancer drugs and various consumer products.

The country's leaders have also put forward other important contracts, such as the German chemical manufacturer BASF (BASFn.DE) obtained approval in July for the construction of the first chemical complex in China.

Rules changes have already helped Tesla Inc. (TSLA.O) obtain Beijing's approval for the creation of a wholly-owned manufacturing and sales company in Shanghai. A foreign car manufacturer will for the first time be able to establish a full presence in China without a partner.

BMW is one of the largest exporters of vehicles from the United States to China, placing it firmly in the sights of the trade war.

"Given the trade dispute between the US and China, automakers have a strong incentive to produce vehicles in the marketplace where they sell them," said auto industry analyst James Chao.

He added that the control of the joint venture could prompt BMW to import models such as the BMW X4, X5 and X6 sport utility vehicles, which are currently being built in the United States.

NOT BRILLIANCE FOR BRILLIANCE

But if the move is a big win for BMW, it means a reduced role for its listed partner in Hong Kong.

Brilliance, which generates most of its turnover with BMW cars, saw its shares fall by nearly 50% this year when there was talk of such an agreement. His actions were suspended Thursday.

Brilliance President Qi Yumin praised the company's past success and said the future offered new opportunities in comments posted on the company's WeChat account. He added that, even if the situation was complex, the partners should "stay welded together".

A number of automakers said earlier this year that they had no immediate plans to change the structure of their Chinese joint venture despite the planned rule changes.

But China's demand for mass-market passenger cars has diminished, which has heightened the reliance of some local players, such as BAIC, on business revenues from high-end brands such as Daimler.

Industry experts and analysts fear that sales will drop this year for the first time in decades. Auto sales in China fell in July and August.

However, BMW chief financial officer Nicolas Peter said the company remains optimistic about its dominant market.

"The main reason we are investing in China is because we are absolutely convinced that the market has additional growth potential," Peter said in an interview at the Shenyang event. He added that the company is also investing in additional capacity in the United States.

The duration of the joint venture will also be extended to 2040 from 2028.

($ 1 = 0.8642 euros)