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BMW to gain control of China venture for $4.2bn in milestone deal

The luxury carmaker will pay €3.6 billion to raise its stake in its venture with Brilliance China Automotive Holdings Ltd to 75% from 50%, it said in a statement.

BMW headquarters in Germany. Picture: Pinterest.

SHENYANG, China – Germany’s BMW said it will take majority control of its main China joint venture for $4.2 billion, 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 will pay €3.6 billion to raise its stake in its venture with Brilliance China Automotive Holdings Ltd to 75% from 50%, it said in a statement. The deal will close in 2022 when rules capping foreign ownership are lifted.

The move should give BMW the confidence to shift more production to China, boosting profits amid a whipsawing trade war between Washington and Beijing that has raised the cost of imports.

The deal also marks a milestone for foreign carmakers which have been capped at owning 50 percent of any China venture and have had to share profits with their local partner.

“We are now embarking on a new era,” BMW Chief Executive Harald Kruger said in a speech at an event in the northeast Chinese city of Shenyang on Thursday. He thanked Chinese Premier Li Keqiang who he said had “personally supported” the plan.

Beijing has been keen for global carmakers to invest more in China. It is also easing restrictions that cap foreign ownership of electric vehicles businesses at 50% this year.

The rule changes have already helped Tesla Inc gain Beijing’s approval for a wholly owned China manufacturing and sales company in Shanghai, marking the first time a foreign carmaker will be able to establish a full presence in China without a partner.

“Given the trade dispute between the US 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.

LOCAL PRODUCTION

BMW said the aim of the move was to increase production capacity at its existing manufacturing sites in Shenyang and expand the localization of additional models including so-called new energy vehicles.

BMW is one of the biggest exporters of vehicles from the United States to China, putting the carmaker firmly in the crosshairs of a trade war which has seen both sides raise tariffs on a multitude of goods, including automobiles.

Kruger said in Shenyang that the joint venture planned to add a new plant at its site in the city, spending over 3 billion euros on a large-scale expansion of the existing production facility.

The term of the joint venture is also to be extended to 2040 from 2028, the German automaker said.

Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, said the move would likely spur other global carmakers to push for higher ownership of their China ventures, though it remained to be seen how the new structure would work in practice.

“Others will follow over time, but the divorce schedule depends on how strong or capable the local partner is,” he said.

In addition to its Brilliance partnership, BMW is also working on a new venture for its Mini brand with China’s Great Wall Motor Co.

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