BMW to take full control of Chinese joint venture

BMW headquarters in Germany

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State-run Brilliance, which was founded in 1992, sold about 102,000 vehicles under its own brand in 2017, compared with 387,000 locally built BMWs, and is heavily dependent on revenues from its joint venture with BMW. Harald Krüger, BMW's CEO, said Chinese Prime Minister Li Keqiang personally supported the negotiations with Brilliance.

"We see this as a game changing strategic achievement", Arndt Ellinghorst, a London-based analyst at Evercore ISI, said in a note to clients.

China has been eager for global carmakers to invest more in the country, including relaxing its policies that restrict foreign ownership of electric vehicles businesses at 50 percent this year.

Kruger said the joint venture, BMW Brilliance Automotive, planned to add a new plant at its site in the city, spending more than €3bn on a large-scale expansion of the existing production facility. When this change occurs is unclear, as the move still needs to be approved by Brilliance's shareholders and the Chinese authorities. That marked the first time a foreign carmaker established a full presence in China without a partner.

For electric-car joint ventures, Beijing already scrapped the rule this year, and Tesla won approval to set up a fully-owned electric-car plant in Shanghai.

While Brilliance is getting a hefty payment from BMW for the 25 percent stake, it is reducing its holding in a partnership that accounted for most of its profit a year ago.

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Complete control of the joint venture could help BMW bring making of models such as the X4, X5, and X6 sport utility vehicles, which are now manufactured in the USA, to China, according to Chao.

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

In the context of the 15th anniversary of BBA, the BMW Group today announced together with partner Brilliance China Automotive Holdings Ltd (CBA) the early extension of the JV contract and further deepening of the existing successful collaboration. The shares, the second-worst performer this year among Chinese vehicle stocks traded in Hong Kong, were halted early Thursday.

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 vehicle purchases on the back of higher tariffs. BMW said its deal will be completed in 2022.

To force the issue, and to hit back at China for alleged theft of American intellectual property, US President Donald Trump has slapped tariffs on roughly half of the imports from China.

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

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