BMW finally won the control of the joint venture, Dong Yang: there will not be a lot of follow-up

The BMW Group's promotion of the joint venture share ratio in BMW Brilliance has finally landed.

On February 11, the BMW Group officially announced that from February 11, 2022, the new joint venture contract of BMW Brilliance Automotive Co., Ltd. (hereinafter referred to as "BMW Brilliance"), a joint venture of bmw group in China, came into effect, and the validity period of the joint venture between BMW Group and its Chinese partners was extended to 2040.

Since then, the BMW Group has officially become the first foreign-owned enterprise in China to increase its equity in a joint venture from 50% to 75%. According to previously disclosed information, BMW paid 3.7 billion euros (26.7 billion yuan) in cash for the transaction to gain control of the joint venture.

BMW said that the increase in its shareholding ratio will have a one-time positive impact on the financial performance of its automotive business of 7 billion to 8 billion euros, and increase free cash flow by about 5 billion euros.

BMW was able to further increase its share ratio thanks to the mainland's continuous opening up of its automotive industry policy.

As early as 2018, the mainland lifted the foreign ownership restrictions on new energy automobile companies, which enabled Tesla to build a factory in China as a sole proprietorship. The BMW Group also reached an agreement with Brilliance Auto in the same year on increasing the share ratio. According to the policy provisions of the year, the agreement will enter into force in 2022.

In 2020, the mainland has abolished the foreign ownership restriction on commercial vehicles, and it is only a matter of time before the restriction on the share ratio of the passenger car industry is abolished.

Therefore, on December 27, 2021, the mainland officially issued the Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Edition). The policy stipulates that from January 1, 2022, in the field of automobile manufacturing, the restriction on foreign ownership in passenger car manufacturing and the restriction that the same foreign company can establish two or fewer joint ventures in China to produce similar vehicle products will be abolished.

The abolition of the passenger car share ratio restriction marks the complete opening up of the mainland automotive industry. The BMW Group was the first person to eat crabs under this policy.

Chiptzer, Chairman of the BMW Group, said: "Today marks an important step for the BMW Group to invest in China, and we will continue to strengthen our long-term commitment to the Chinese market and continue our business development. ”

As a concrete measure of BMW's continued investment in China, BMW Brilliance will usher in another capacity increase this year: the existing plant in Shenyang's Dadong District is currently undergoing a full expansion, and a new plant in Tiexi District is also under construction. Thanks to this, the BMW Group's production capacity in China will be expanded, the variety 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, the BMW brand will have 5 blockbuster pure electric models related to the Chinese market. Among them, the innovative BMW iX has released the price and completed the listing; the i4 pure electric and the pure electric 3 series produced in Shenyang will also have new news this year; and the first pure electric luxury flagship sedan BMW i7 will be unveiled within the year.

The BMW Group aims to supply around 13 pure electric products to the Chinese market by the end of 2023 and convert 25% of its sales in the Chinese market into pure electric vehicles by 2025.

Gao Le, President and CEO of the BMW Group Greater China, said: "In the transformation of the BMW Group towards electrification, digitalization and sustainable development, China, as a leader in these aspects, is our best choice and best partner. The BMW Group will continue to make China its home and its counterparts with China. ”

In addition to continuously promoting the electrification transformation in the Chinese market, the BMW Group is also increasing the number of other models localized. 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 the BMW Group's investment in the increase in its equity in the joint venture attract other joint ventures to follow suit? At present, this is only a case, and it cannot be a reference for every enterprise in it.

The Volkswagen Group acquired a majority stake in the Volkswagen Anhui joint venture focusing on electric vehicle production in 2020, while its stakes in SAIC-Volkswagen and FAW-Volkswagen remain unchanged.

Mercedes-Benz owns a 49% stake in its joint venture in China, Beijing Benz. According to media reports in recent years, Mercedes-Benz is seeking to increase its stake, but has repeatedly been opposed by its partner BAIC Group.

Japanese car companies, including Toyota, Honda, and Nissan, also operate a 50/50 joint venture in China. Although China has fully relaxed the restrictions on the share ratio, according to the Nikkei Chinese Network, many large Japanese car executives believe that Japanese car companies attach great importance to the trust relationship with Chinese car companies, and increasing the proportion of equity needs to be carefully considered.

There are also some joint venture car companies that have to change according to the current operating status quo.

For example, recently, South Korea's Kia Co., Ltd. signed an expansion investment agreement with the Yancheng People's Government and Jiangsu Yueda Group. Dongfeng Motor Group withdrew from the previous tripartite joint venture. At present, Kia Motors and the Chinese Yueda Group still have a 50:50 equity ratio.

According to the official introduction, the new joint venture company plans to increase its capital by 900 million US dollars and rapidly increase vehicle sales and capacity utilization rates by expanding investment, introducing new models, developing new energy vehicles, and setting up export bases. According to the plan, the new company name will be released in April this year.

For example, The Stellantis Group, which runs the Peugeot Citroen brand, Jeep brand and Maserati brand in China, announced on its official website more than half a month ago that it would increase its stake in GAC FCA, a joint venture with GAC Group, from 50% to 75%.

Although GAC Group subsequently told the media that this release was not approved by it, it did not deny that "Stellantis Group will increase the joint venture share ratio".

More details of stellantis Group's plans for the Chinese market will be announced at its global strategy launch in the near future.

In short, after the opening of the share ratio restriction, the BMW Group has set a precedent, and whether there will be follow-up by the company depends on the operating status of the company concerned, as well as the voice and contribution of the two parties in the joint venture company. Judging from the current cases, some foreign parties have taken the initiative to increase holdings, and some are Chinese parties who have taken the initiative to withdraw. Regardless of the change in the shareholding ratio, most joint ventures will still maintain the joint venture model, and no company is willing to switch from joint venture to sole proprietorship. This shows that in the process of joint ventures for so many years, foreign parties still recognize the contribution and role of the Chinese side.

Dong Yang, former executive deputy secretary general of the China Association of Automobile Manufacturers and vice chairman of the China Electric Vehicle Hundred Association, told Che Yun that this is a market behavior that needs to be seriously studied by both sides. And from the long-term development of the assessment, there will not be a large number of follow-up situations.

Change and invariance are the result of the combined action of multiple factors.