With $4.2 billion deal, BMW to raise stake in China venture to 75%

Beijing has been keen for global carmakers to invest more in China and has also eased restrictions that cap foreign ownership of electric vehicle businesses.

Germany's BMW will pay 3.6 billion euros ($4.2 billion) to take control of its main joint venture in China, 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 said on Thursday it would increase its stake in its venture with Brilliance China Automotive Holdings Ltd to 75 per cent from 50 per cent, with the deal closing in 2022 when rules capping foreign ownership for all auto ventures are lifted.

The move will likely spur BMW to shift more production to China, helping to protect profits amid a whipsawing trade war between Washington and Beijing that has raised the cost of BMW importing cars manufactured at its US plant in South Carolina.

The deal also marks a milestone for foreign carmakers which have been capped at owning 50 per cent of any Chinese venture and have had to share profits with their local partner, and could encourage rivals such as Mercedes maker Daimler.

"We are now embarking on a new era," BMW Chief Executive Harald Krueger said in a speech in Shenyang, northeast China, where the joint venture is based. He thanked Chinese Premier Li Keqiang, whom he said "personally supported" the plan.

Evercore ISI analyst Arndt Ellinghorst called the deal a major breakthrough. "In the future, BMW will have the full control over the biggest regional profit pool of its business," he wrote.

Beijing has been keen for global carmakers to invest more in China and has also eased restrictions that cap foreign ownership of electric vehicle businesses at 50 per cent.

The joint venture plans to add a new plant, spending over 3 billion euros on a large-scale expansion of the existing production facility, Krueger said.

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Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, said: "Others will follow over time, but the divorce schedule depends on how strong or capable the local partner is."

Daimler's Chief Executive Dieter Zetsche told Reuters last week that recent signals from the Chinese authorities were encouraging, but the German carmaker did not yet have legal permission to make a move.

"If we do, we need to see what opportunities there are," Zetsche said at the Paris Motor Show, adding any steps depended on talks with BAIC Motor Corp, Daimler's partner in joint venture Beijing Benz.

As trade tensions have escalated, China's government has pledged to open up its markets more widely, including cutting taxes on imported vehicles, cancer medicines and a range of consumer goods.

Business Standard