The German manufacturer has paid 3.6 billion euros to take control of its Chinese subsidiary. A first for a foreign manufacturer!
BMW is making moves in China, the world’s largest automotive market.
The German giant, which makes a quarter of its sales and profits in this market, announced on Thursday its intention to significantly increase its production capacity and – for the first time – to take majority control of its joint venture created 15 years ago with Chinese manufacturer Brillance. BMW will invest €3.6 billion to increase its stake in the BMW Brillance Automotive (BBA) joint venture from 50% to 75%.
This acquisition will be formally effective in 2022, a date set by Beijing to abolish the thresholds of ownership that have prevented foreign manufacturers from controlling their joint ventures. BMW is the first car group to benefit from this liberalization announced several months ago by the Chinese government.
Increasing production capacity
This acquisition will accompany an increase in BMW’s production capacity in China. The manufacturer has announced an investment of more than 3 billion euros in Shenyang (northeast China), where we can locate the two plants of the “JV.” A new plant will be created at the Tiexi site, while they will expand the Dadong plant. These investments will enable BMW to increase its production capacity in China to 650,000 vehicles by 2020, compared to 400,000 today.
BMW revises its profit forecasts
“Our goal is to continue locating additional models, including new power generation vehicles,” explains BMW. Currently, we produced six BMW models in Shenyang. From 2020, the all-electric BMW iX3 will only be produced in China “and exported to world markets,” says the German manufacturer.
As the largest exporter of vehicles from the United States to China, BMW is one of the companies most exposed to the trade war between the two countries. Last year, BMW shipped more than 100,000 vehicles to China from its plant in Spartanburg, South Carolina. Of the 560,000 BMW cars sold in China last year, one-third didn’t come from in the two Chinese factories of their joint venture.
Towards a decline in the Chinese market?
Car sales in China could register their first annual decline since 1990 this year, while demand is declining in rural areas, where car buyers are more sensitive to the economic downturn. Nomura Bank expects the market to drop by 1.6% for the year as a whole. We will be monitoring this over the next few months of course!