The global automaker BMW AG said over the weekend that it had secured a business license from Chinese regulators that would allow it to increase its interest in its Chinese joint venture (JV) with Brilliance China Automotive Holdings to 75 percent from 50 percent.
BMW Brilliance Automotive will become the first joint venture producing internal combustion vehicles in China with foreign ownership topping 50% as a result of the move, which comes after Chinese authorities lifted limitations on foreign participation in the sector at the beginning of this year.
Brilliance According to the terms of the equity transfer agreement, China is anticipated to receive close to 28 billion yuan ($4.41 billion) in cash from BMW by February 22. This information was provided by the Chinese automaker in a filing with the Hong Kong Stock Exchange.
The JV contract’s extension, which would extend until 2040, becomes effective as of Friday.
In a separate statement, BMW noted that the BMW Brilliance facility in Shenyang’s Dadong district, the provincial capital of Liaoning Province in northeast China, is undergoing a thorough expansion, and that a brand-new plant is being constructed in the Tiexi sector of the city.
BMW stated that it will use the increased capacity to produce models for the Chinese market and noted that the equity transfer was made possible by China’s relaxation of its limitations on foreign investment in the automotive sector.
The Chinese government announced a timeline in April 2018 for the opening-up of the domestic car industry, abolishing foreign ownership restrictions for new-energy vehicle manufacturers in 2018, commercial vehicle manufacturers in 2020, and all automakers in 2022.
BMW subsequently declared that it would acquire control of its principal JV in China at the beginning of October 2018.
Other international automakers have either built fully owned facilities or grown their stakes in their JVs in China.
For instance, Tesla is the country’s first electric vehicle company with 100% foreign ownership. Volkswagen acquired a majority stake in JAC Volkswagen, its joint venture for electric vehicles, in 2020.
According to Feng Shiming, a car expert with Shanghai-based Menutor Consulting, “to some extent, BMW has created a pattern for JV automakers to change their stock interests, which will be followed by other ventures.” The key will be in the contribution and capacity of each party in the joint ventures, and certain changes to the domestic car sector may occur.
JVs have dominated China’s passenger automobile industry for the past 20 years. But in recent years, this pattern has encountered more and more difficulties. Flexible market adjustment has become a crucial requirement for automakers throughout the transition to smart and electric vehicles, but analysts have noted that decision-making is typically slow at JVs where both parties have equal stakes.
Due to increased foreign investment in the Chinese auto sector, domestic manufacturers will experience increasingly intense competition, with some uncompetitive ones being gradually pushed out of the market.
According to Feng, this is precisely why China wants to introduce competition into the automotive industry: to encourage domestic firms to speed up innovation and investment in order to become the country’s own car leaders.
According to figures from the China Association of Automobile Manufacturers, China’s vehicle production and sales grew 3.4 percent and 3.8 percent to 26.08 million and 26.28 million, respectively, in 2021, breaking a three-year decline.
Majority interest in Chinese JV owned by BMW
BMW increased its stake in BMW Brilliance to 75% on Friday, making it the first Western automaker to gain majority control of its Chinese joint venture.
When China declared in 2018 that it will reform ownership limits in the automobile industry, the German automaker signed an agreement with Brilliance Auto to increase its interest from 50% to 75% in their joint venture.
In 2018, the Chinese government lifted restrictions on foreign ownership of businesses that produce completely electric and plug-in hybrid automobiles. The same regulations went into force for manufacturers of commercial vehicles in 2020 and for the passenger car market in 2022.
According to analysts, a majority ownership in joint ventures, which entails a greater say and more profit, will spur the ambition and dedication of multinational automakers in China, the largest market for vehicles in the world.
The agreement between BMW and Brilliance to extend their joint venture went into effect on Friday in addition to the equity change. The 2003-founded alliance is currently valid through 2040.
BMW Chairman Oliver Zipse said in a statement on Friday that “today marks a major step, as we continue to deepen our long and successful commitment to China.”
The growth and continuous development of our BBA joint venture, according to Zipse, “can only go hand in hand with our continued success in the greatest automobile market in the world.”
As the best-selling premium manufacturer in China, BMW recorded a 9% increase in sales to 846,237 vehicles in 2021.
In the course of the year, BMW Brilliance, a company situated in Shenyang, Liaoning province, manufactured 700,000.
According to BMW’s chief financial officer Nicolas Peter, sales are anticipated to increase in 2022 as demand in China continues to rise.
One facility is currently being enlarged, while a second one is currently being built, according to BMW, which says it is increasing its production capacity in China.
According to Reuters, BMW will begin manufacturing the X5 SUV, a model that was previously imported from the United States, in the second quarter of this year at the BMW Brilliance joint venture.
“Our expanded joint venture agreement establishes the groundwork for future mutual growth and forward-thinking development. As a result, it opens the door for balanced development in the world’s three major regions, as we have in the past “Peter stated.
Some major global automakers are considering doing the same with their joint operations.
Stellantis announced late last month that it would seek to increase its equity in its joint venture GAC-Stellantis from 50% to 75%, stating that this will provide a new foundation for its operations in China.
Chinese businesses currently own five European vehicle brands.
Do you anticipate the arrival of the Chinese in the automobile industry? Think again because these five Chinese-owned brands of European automobiles and automobile-related products are now available in New Zealand.
Ford’s sale of Volvo to privately held Chinese company Geely in 2010 when it was busy bailing out all of its non-Ford brands is perhaps the one that most people are familiar with.
Geely has been very cautious with Volvo, continuing to use its production facilities in Malaysia and Belgium (yes, since 1967 in fact!) in addition to maintaining operations in Sweden. Of course, it has increased production after the takeover and established factories in China, India, and the US.
Additionally, Geely recently separated Polestar Performance, a Volvo subsidiary that specializes in high performance electric vehicles, into its own brand.
When BMW acquired the Rover Group in 1994, it “saved” MG from becoming a victim of the entire messy, protracted demise of the UK auto industry. However, in 2000, the Rover Group was sold to the dubious Phoenix Consortium.
The Nanjing Automobile Group, which also wanted Rover, saved it once more in 2005, but Ford bought the name to safeguard Land Rover, which it still controlled at the time but later sold to Indian juggernaut Tata.
After a brief and thoroughly foolish time in which MG stood for “Modern Gentleman,” rationality returned and “Morris Garages” was reinstated following a merger with the Chinese state-owned SAIC Motor.
LDV, commonly known as Leyland DAF Vans, is another exile from the Rover Group/British Leyland that now resides at SAIC.
Actually, SAIC was the only party to show interest in purchasing the intellectual property rights (names, designs, etc.) for LDV after no one else did. This was after a protracted, sluggish fall marked by mergers, management buyouts, and eventually collapse.
In 2011, SAIC resumed making LDV vans in China; they were sold locally under the Maxus brand (which was an LDV model) and exported to other countries as LDVs. Given the brand’s strong local sales, Kiwis will undoubtedly be familiar with LDV vans.
To be more precise, as of 2017, Geely owns 51% of it, with Etika Automotive, a Malaysian manufacturer of truck bodies and trailers, owning the remaining 49%.
This happened after DRB-HICOM, through its Proton business, had been owned by Malaysia for a number of years. Prior to that, it had been bought from General Motors by the insane Italian Romano Artioli, who also tried to ruin Bugatti.
The engineering consulting firm Lotus Engineering, which has locations in the UK, USA, China, and Malaysia, is also owned by Geely.
Legendary Italian tyre manufacturer Pirelli is currently majority (45.5%) owned by Chinese state-owned chemical business ChemChina. Pirelli is not a car manufacturer, but it is undoubtedly a revered and admired name in the whole European automotive industry.
ChemChina paid NZ$11.7 billion for its shares in 2015, which is actually pennies compared to the company’s subsequent acquisition of Swiss seed and pesticides group Sygenta for NZ$72 billion and the proposed merger of Sinochem with another Chinese state-owned chemical company that would have given the combined company a staggering NZ$175 billion valuation the same year!
BMW seizes control of a Chinese venture and makes significant profits
In order to maintain control over its operations in the largest car market in the world, Bayerische Motoren Werke AG announced that it has acquired majority ownership of its Chinese joint venture.
The action is another another indication that Western automakers are utilizing changes to Chinese regulations to strengthen their control over their companies and increase revenues in the enormous market.
According to the agreement, which will take effect on Friday, BMW said it will pay 3.7 billion euros, or $4.2 billion, to increase its interest in BMW Brilliance Automotive Ltd. from 50% to 75%. This was a move it hinted at in 2018.
Brilliance China Automotive Holdings Ltd., BMW’s partner, will keep 25% of the business.
The higher asset valuation would result in a one-time financial gain of between EUR7 and EUR8 billion, according to the German automaker, which also predicted that the move would greatly increase its cash flow and earnings.
Beijing announced four years ago that it will gradually relax previously tough ownership requirements on joint ventures with foreign auto makers by 2022 as a result of trade tensions between the U.S. and China during the Trump administration.
Prior to the implementation of the new regulations, foreign producers were not permitted to fully own or manage their companies.
Tesla Inc., the industry leader in electric vehicles, was able to start with complete ownership when it launched its Shanghai factory in 2020, its first facility outside of the United States.
However, some automakers with a long history in China continue to run joint ventures with local producers, which forces them to split profits and factories with their partners.
Philippe Houchois, an automobile analyst at the brokerage Jefferies, stated that when Tesla exports from China, they are not required to split the earnings. China can also be a worthwhile export market for BMW.
Last month, Stellantis NV, the company that owns the Jeep, Chrysler, Peugeot, and Fiat brands, announced that it intended to increase from 50% to 75% its ownership position in Guangzhou Automobile Group Co., a joint venture that produces automobiles in China.
According to some analysts, in order to increase profitability and improve decision-making, Western automakers must seize control of their joint ventures in China.
The move, according to Mr. Houchois, would cost a lot of money for big firms. He stated that he didn’t anticipate international automakers to hurry to buy out their Chinese partners.
According to BMW, it delivered 846,237 cars under the BMW and Mini brands to clients in China last year, up 21% from the year before.
About 40% of BMW’s total auto sales are in China. About 700,000 automobiles were produced for BMW last year through the BBA venture.
Do BMW components come from China?
The largest engine manufacturer in the world is Honda. Honda developed and sold more than 23 million units worldwide for a wide range of automobile, motorbike, marine, and power equipment items in just 2009.