BMW finally wins control of joint venture, Dong Yang: Not a lot of copycat

2022-06-05 0 By

BMW Group to upgrade the BMW Brilliance in the joint venture in the ground finally boots.On February 11, BMW Group officially announced that the new joint venture contract of BMW Brilliance Automobile Co., LTD. (HEREINAFTER referred to as “BMW Brilliance”), BMW Group’s joint venture in China, has come into effect from February 11, 2022, extending the validity of the joint venture between BMW Group and its Chinese partner until 2040.Since then, BMW Group officially became the first foreign enterprise in China to increase its shareholding in the joint venture from 50% to 75%.BMW paid 3.7 billion euros (26.7 billion yuan) in cash for control of the joint venture, according to previous disclosures.BMW said the increased stake would have a one-time positive impact of 7-8 billion euros on the financial results of its automotive business and increase free cash flow by about 5 billion euros.BMW has been able to further increase its share ratio thanks to China’s continued opening-up of the auto industry.As early as 2018, China lifted restrictions on foreign ownership of new energy vehicle companies, which enabled Tesla to set up a factory in China as a sole proprietorship.BMW group also in that year and Brilliance auto on the promotion of equity reached an agreement.Under that year’s policy, the agreement will take effect in 2022.In 2020, China cancelled the foreign equity ratio limit of commercial vehicles, and it is only a matter of time for the passenger car industry to cancel the equity ratio limit.So on December 27, 2021, China officially released the “Special Management Measures for Foreign Investment Access (Negative List) (2021 version)”.The policy stipulates that from January 1, 2022, restrictions on foreign ownership in passenger car manufacturing and restrictions on the establishment of two or fewer joint ventures in China for the production of the same vehicle products will be lifted in the auto manufacturing sector.The abolition of passenger car share ratio restriction marks that China’s automobile industry has fully realized the opening to the outside world.BMW Group is the first to embrace this policy.”Today marks an important step in the BMW Group’s investment in China as we continue to strengthen our long-term commitment to the Chinese market and continue to grow our business,” said BMW Group Chairman Thomas Zipzer.As part of BMW’s continued investment in China, BMW Brilliance will see another capacity increase this year: the existing factory in Shenyang’s Dadong district is currently being fully expanded, and a new factory in Tiexi District is under construction.Thanks to this, BMW Group’s production capacity in China will be expanded, the range of locally produced models will be further increased, and more pure electric models will be introduced for domestic production.According to the plan, in 2022 BMW brand will have 5 heavy pure electric models related to the Chinese market.Among them, innovative BMW iX has released its price and finished listing;The i4 pure battery and the pure battery 3 series produced in Shenyang will also be announced this year;Also, BMW I7, the first all-electric luxury flagship sedan, will be unveiled this year.The BMW Group aims to provide about 13 pure electric products for the Chinese market by the end of 2023, and to convert 25 percent of the sales volume in the Chinese market to pure electric vehicles by 2025.”China is the best choice and partner for the BMW Group as a leader in our transformation towards electrification, digitization and sustainability,” said Michael Kole, president and CEO of BMW Group Greater China.The BMW Group will continue to take China as its home.”In addition to the electric transformation in the Chinese market, BMW Group is also increasing the number of domestic production of other models.The highly anticipated BMW X5 will officially enter BMW Brilliance’s product lineup this year.Previously, the model was imported from the United States.Will BMW group’s contribution to increase its stake in the joint venture lead other joint ventures to follow suit?For now, this is an isolated case and should not be a reference for every company involved.Volkswagen Group acquired a majority stake in its Anhui joint venture focused on electric vehicle production in 2020, while its stakes in SAIC Volkswagen and FAW-Volkswagen remain intact.Mercedes-benz owns 49 percent of its Joint venture in China, Beijing Benz.According to media reports in recent years, Mercedes-Benz was seeking to increase its stake, but repeatedly faced opposition from its partner baiC Group.Japanese automakers such as Toyota, Honda and Nissan also operate 50-50 joint ventures in China.Although China has fully lifted the shareholding limit, according to Nikkei China, many senior executives of large Japanese car companies believe that Japanese car companies attach great importance to the trust relationship with Chinese car companies, and raising the shareholding ratio should be carefully considered.Some joint ventures have to change according to the current operating situation.For example, Kia Recently signed investment expansion agreements with yancheng People’s Government and Jiangsu Yueda Group.Dongfeng Motor Group withdrew from its previous three-way joint venture.At present, Kia motors and Yueda Group of China are still 50:50 shares.The new venture plans to increase its capital by $900 million and rapidly increase vehicle sales and capacity utilization by expanding investment, introducing new models, developing new energy vehicles and setting up export bases, according to the official introduction.The plan is to release the new company name in April.For example, Stellantis Group, which operates Peugeot Citroen, Jeep and Maserati brands in China, announced on its website more than half a month ago that it would increase its stake in GAC FK, a joint venture with GAC Group, from 50% to 75%.Although GAC later told the media that it did not approve of the announcement, it did not deny that “Stellantis Group will increase the shareholding ratio of the joint venture”.More details of Stellantis Group’s plans for the Chinese market will be announced at its global strategy presentation soon.In short, BMW Group has set a precedent after the opening of the shareholding limit. Whether there will be follow-through depends on the operating status of the companies involved and the right to speak and contribution of both parties in the joint venture.Judging from the current cases, some foreign parties have taken the initiative to increase their holdings, while others have taken the initiative to withdraw.No matter what happens to the shareholding ratio, most of the joint ventures will remain joint ventures and no one is willing to move from joint ventures to sole proprietorship.This shows that the foreign side has recognized China’s contribution and role in the joint venture process for so many years.Dong Yang, former executive vice secretary general of China Association of Automobile Manufacturers and vice chairman of China Electric Vehicle Association, told Che Yun that this is a market behavior that needs to be carefully studied by both sides.And from the long-term development of assessment, there will not be a lot of copycat situation.Change and invariance are the result of comprehensive action of multiple factors.