BMW Brilliance Automotive Ltd. (BBA), a joint venture between BMW Group and Brilliance Group, was established in May 2003. Its commercial activities consist of R&D,…
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To take control of a Chinese JV, BMW pays $4.2 billion.
As previously announced in 2018 when China declared it would start easing ownership regulations in the auto industry, the German automaker announced on Friday that it was boosting its interest in the partnership with Brilliance Auto Group from 50% to 75%.
China stated at the time that it will lift foreign ownership restrictions for businesses producing fully electric and plug-in hybrid vehicles in 2018, commercial vehicle manufacturers in 2020, and the overall auto market in 2022.
BMW claimed that the transaction will enhance free cash flow by around 5 billion euros and have a one-time positive impact of 7-8 billion euros ($8-9 billion) on the financial results of its automotive division.
Nicolas Peter, chief financial officer, stated that “our extended joint venture contract creates the framework for ongoing mutual growth and progressive development… It paves the path for balanced development in the three main regions of the world.”
The primary joint venture in China that BMW established in 2003 and presently has a contract with until 2040 was the first manufacturer to announce in October 2018 that it would assume ownership of the business.
In 2020, Volkswagen (VOWG p.DE) acquired the majority ownership of its joint venture JAC Volkswagen, which produces electric vehicles.
According to BMW’s CFO, the company expects sales in China to increase through 2022. Last year, 846,237 BMW and Mini vehicles were delivered, representing a 9% increase. In 2021, the joint venture between BMW and Brilliance Automotive manufactured 700,000 automobiles.
Based in Shenyang, one plant in the Dadong area is now being enlarged, and a new one that will produce hybrid and internal combustion engine vehicles in addition to totally electric ones is also being built alongside an existing plant in Tiexi.
Exclusive: BMW equity increase in China business unaffected by debt problems of parent company Brilliance
BMW said in 2018 that it would pay 3.6 billion euros ($4.2 billion) in 2022 for an additional 25% stake in the partnership with Brilliance, which is its largest joint venture in China. This would be in addition to BMW’s current 50% stake and would give BMW Brilliance Automotive full control (BBA).
Investors are now questioning whether the acquisition will go through because Huachen Automotive Group, the parent firm of Brilliance, has filed a court application requesting for a restructuring of the business.
The payment issues of the Chinese Brilliance Group have no direct impact on the BMW Group or the running activities of the joint venture BMW Brilliance Automotive Ltd (BBA). Officially known as Huachen Automotive Group Holdings Company Ltd., Brilliance’s parent company.
According to three persons who participated in various discussions, Brilliance has been holding conference calls with investors since September to reassure them that Huachen’s debt issues won’t likely affect the deal’s completion.
According to the terms of the contract, 50% of BBA is not held directly by Brilliance but rather through two layers of organizations that are 100% controlled by Brilliance and its subsidiary, according to Haitong International analyst Shi Ji.
Therefore, he claimed, BBA’s business would be safeguarded under the law even if Huachen Group declared bankruptcy or transferred its holdings.
A few high-profile Chinese debt defaults have occurred recently, scaring traders and causing a decline in the value of bonds.
The most recent round of defaults, which Goldman Sachs highlighted are more numerous and larger than those from the previous year and include more state-owned firms, show that investors must pay particular attention to avoid getting caught in the credit cleaning.
Bondholders believe that Huachen’s bankruptcy reorganization would be unfavorable because they would probably end up gaining little benefit from it.
BMW Group strengthens ties in China as joint venture agreement is extended until 2040
The BMW Group emphasizes its long-term commitment to China by announcing that the joint venture agreement for the BMW Brilliance Automotive Ltd. (BBA) joint venture will be extended until 2040 as of February 11, 2022.
The two joint venture partners signed the contract extension agreement in October 2018, in honor of BBA’s 15th anniversary. With the new “business licence” that BBA got from the relevant Chinese authorities today, the necessary adjustment to the contract becomes effective.
“Today represents a significant development in the long-standing and fruitful commitment we have to China. We are adamant that the expansion and continuous development of our BBA joint venture are necessary for us to maintain our competitive advantage in the largest automotive market in the world. The joint venture agreement was extended until 2040 and provides the framework for long-term business success, spurring growth and prosperity in Liaoning Province and beyond “Oliver Zipse, the chairman of BMW AG’s board of management, remarked.
As agreed upon by both joint venture partners in 2018, the new “business licence” also makes the increase in BMW Group’s interest in BBA effective as of February 11, 2022. Brilliance China Automotive Holdings Ltd. (CBA), a partner in China, indirectly owns the remaining 25% of BBA whereas BMW Group now retains 75% of the company’s shares.
In the Chinese market, a total of 846,237 BMW Group vehicles were delivered to customers in 2018 (+8.9% compared to 2020). BBA employed about 23,000 people and manufactured more than 700,000 BMW cars in 2021.
BBA is boosting production capacity in Shenyang once again this year in response to high demand: A wholly new factory is also being constructed in the Tiexi area, while the BBA plant in the Dadong district is currently undergoing a thorough expansion. The extra capacity will be used by the BMW Group to locally build models for the Chinese market that are also produced in other facilities. Additionally, it will be used to produce more entirely electric vehicles in China.
Nicolas Peter, member of the Board of Management of BMW AG responsible for Finance, noted that “BBA’s outstanding success story testifies to the proven relationship within the joint venture and with the provincial government in Liaoning.” “Our local investments are demonstrating to be the ideal course of action. BMW’s position as a premier premium brand in China has been greatly aided by BBA. BBA has made more than 10 billion euros in investments in China in only the last ten years. Our expanded joint venture agreement establishes the groundwork for future mutual growth and forward-thinking development. As a result, it prepares the basis for continued, balanced development in the world’s three major areas.”
At two facilities in Shenyang, the joint venture, which was established in 2003 with Chinese partner Brilliance China Automotive Holdings Ltd. (CBA), manufactures BMW automobiles with internal combustion engines and electric drivetrains for the Chinese market as well as for export (Liaoning Province).
The BBA joint venture will be completely consolidated in the BMW AG Group Financial Statements as of February 11th. By February 22, the purchase price should have been paid in full.
The ad hoc notification, which was also posted today, details the principal impact on the Financial Statements for the fiscal year 2022.
BMW buys the bulk of the BBA joint venture.
A majority share in BMW Brilliance Automotive has been acquired by BMW. The automaker with headquarters in Munich owns only 75% of the shares, as was previously revealed three years ago. The announcement of a new factory for the joint venture is one of the first things the new majority owner did.
BMW claims that the entire consolidation occurred immediately on February 11. BBA already possessed the required business permit from the Chinese government. According to BMW, the paperwork was likewise issued with effect as of February 11th. Thus, the joint venture agreement’s renewal until 2040—announced in 2018 while Harald Kruger was still in office—became effective, bringing BMW’s stake to 75%.
BMW CEO Oliver Zipse said, “Today marks a crucial step as we continue to deepen our long and successful commitment to China.” “We are adamant that the expansion and continuous development of our BBA joint venture are necessary for us to maintain our competitive advantage in the largest automotive market in the world. The joint venture agreement, which has been extended until 2040, establishes the groundwork for long-term corporate success, spurring growth and prosperity in Liaoning province and beyond.”
While joint venture partner Brilliance still owns 25% of BBA, BMW currently owns 75% of it. The shares were previously divided exactly 50:50. The announcement makes no mention of the sum BMW will pay Brilliance for the 25%. It only specifies that the payment must be finished by February 22. Information from 2018 indicates that the purchasing price is 3.6 billion euros.
BBA will be completely integrated in BMW AG’s consolidated financial statements because BMW currently has a controlling stake. “Based on a preliminary appraisal, the revaluation of the shares already owned by BBA at a 50% discount as of February 11, 2022, will have a favorable one-time impact on the Automobiles segment’s financial results in the range of EUR 7 to EUR 8 billion. In the upcoming weeks, a further description of the one-off effect will be made based on BBA’s balance sheet as of February 11, 2022 “In its ad hoc announcement, BMW says.
BMW added that the production capacity of BBA will be increased because to the increasing demand. “The BBA factory in the Dadong district is currently undergoing extensive expansion. In the Tiexi district, a brand-new facility is also being constructed “It was BMW. The BMW Group will use the additional capacity, among other things, to create more all-electric models in China and to manufacture models already made locally at other factories.
Are BMW and the Brilliance Auto Group partners?
BMW Brilliance Automotive Ltd. (BBA), a joint venture between BMW Group and Brilliance Group, was established in May 2003. R&D, sourcing, manufacture, sales, and after-sales services for BMW automobiles are among its business endeavors in China.
With whom does BMW have a partnership?
The two prestigious automakers have previously worked together to produce automobiles. As you are aware, the Supra and Z4 coupe share a basis as well as a straight-six engine. Pieter Nota, head of sales at BMW, stated to Nikkei Asia, “We can see that larger SUVs are a good fit for hydrogen fuel cell technology. We collaborate on a number of projects with Toyota.” Toyota already sells the decent-but-expensive Mirai FCV on the market. Sharing the technology with BMW could therefore increase its appeal.
A limited number of the hydrogen-powered SUVs, the iX5 Hydrogen, which made its debut at the 2019 Frankfurt Motor Show, will be available for purchase in early 2023, according to the Bavarian automaker. The iX5 Hydrogen’s specifications are unknown, aside from its modest 168 horsepower rating, but it is anticipated to be able to transport two 13-pound tanks, making it appropriate for long-distance travel. BMW won’t need to create a separate platform for hydrogen-powered vehicles since Neue Klasse, the next new EV platform, is claimed to enable hydrogen fuel cells.
The advantages of FCVs are well recognized since they can fill up the hydrogen tank(s) in a matter of minutes as opposed to the hour it takes a BEV to fully charge on the fastest charger. “Hydrogen fuel cell drive combined the best of both drive worlds: the locally emission-free mobility of an electric vehicle and the unrestricted suitability for everyday use, including short refueling stops,” according to Jurgen Guldner, head of BMW’s Hydrogen Fuel Cell Technology and Vehicle Projects.