Wednesday, 24 October, 2018

BMW raises stake in main China JV with $4.2 billion deal

BMW headquarters in Germany BMW to spend $4.1bn to take control of its China venture
Priscilla Morrison | 13 October, 2018, 17:54

Brilliance Auto said in a filing to the stock exchange on Thursday evening that it had agreed to the deal in which BMW will spend €3.6 billion to acquire a 25 per cent stake in BMW Brilliance Automotive (BBA) from Shenyang Jinbei Auto, a wholly owned subsidiary of Brilliance Auto.

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 German auto manufacturer and its Chinese partner, Brilliance China Automotive, announced on Thursday a landmark deal to change the balance of equity in their joint venture. In 2017, the famed German brand formed another joint venture with Great Wall Auto to produce electric BMW Mini vehicles.

The filing on Thursday said the new agreement has received support from the Chinese government. "In the future, BMW will have the full control over the biggest regional profit pool of its business", he wrote. As part of the deal, the German automaker is set to invest more than three billion euros to build and upgrade existing plant operations in Shenyang over the coming years. When this change occurs is unclear, as the move still needs to be approved by Brilliance's shareholders and the Chinese authorities.

"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.

"With continuous investment, as well as the development and production of electric vehicles, we underline China's importance as a dynamic growth market for us", BMW CEO Harald Krueger said in a statement.

"Given the trade dispute between the USA 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.

More news: Thierry Henry signs three-year deal to coach Monaco

Brilliance Auto, a state-owned vehicle company headquartered in Shenyang, briefly dropped 30 per cent to HK$7.51 on Friday morning before recovering slightly to close 27 per cent lower at HK¥7.90.

But if the move is a big win for BMW, it spells a diminished role for its Hong Kong-listed partner.

In August, BMW posted a 6 per cent drop in its second-quarter, pre-tax profit, attributing it to a sales slowdown in the Chinese market, as consumers postponed auto purchases on the back of higher tariffs. The partnership accounted for most of Brilliance's profit past year.

In August, China's new vehicle sales continued to fall, following a drop in July.

BMW finance chief Nicolas Peter, however, said the firm remained bullish about its top market.

The term of the joint venture will also be extended to 2040 from 2028.

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