BMW lightly takes Brilliance Mercedes-Benz is difficult to shake BAIC| car sankei

Written by | Chen Hao, Wu Xue

Editor| Yu Jie

Produced | Automotive Sankei

In mid-March, there were rumors of changes in the share ratio of Beijing Benz again in the automotive circle.

Due to the special time point when the ratio of the secret joint venture stock ratio was released, coupled with many details (such as the transaction amount of 5 billion euros, BAIC reverse increased its 12% stake in Mercedes-Benz), this rumor looks more "reliable" than usual.

However, when we first asked an industry insider close to the relevant government departments about this matter, the other party said bluntly: It is not so easy.

"The most eager (to adjust the stock ratio) is Beijing Hyundai, the Chinese and South Korean sides all want to adjust, not no movement, it is useless after the talks..."

NO.1

[Contract Duration Constraints]

First, let's review the situation of several companies that have undergone stock ratio adjustments:

In October 2018, BMW and Brilliance signed a new joint venture agreement to extend the joint venture period of BMW Brilliance from 2018 to 2040, and announced that the sino-foreign equity ratio will be changed to 25:75 after the joint venture share ratio is liberalized in 2022. Prior to this, BMW Brilliance's initial joint venture contract expired in 2018. In 2014, although the two sides renewed the contract until 2028, the agreement at that time also agreed that the premise was "before the updated cooperation plan was finalized".

At the end of 2021, Dongfeng Group, one of the shareholders of Dongfeng Yueda Kia, announced that it would withdraw from the joint venture after the expiration of the tripartite joint venture agreement in 2022. After Dongfeng sold its shares in January this year, at present, Dongfeng Yueda Kia has been changed to two joint ventures of Yueda and Kia.

It is not difficult to analyze the information of BMW Brilliance and Dongfeng Yueda Kia to find that the two have in common - the change in the share ratio occurred after the expiration of the original joint venture agreement.

Let's look at the adjustment of Beijing Hyundai's stock ratio.

On March 18, BAIC Group issued an announcement announcing the progress of Beijing Hyundai's adjustment:

BAIC Automotive Investment Co., Ltd., a subsidiary of BAIC Motor Corporation, signed an agreement with Hyundai Motor to inject US$471 million each into Beijing Hyundai.

After the completion of the capital increase, the registered capital of Beijing Hyundai will increase to US$2.978 billion, and the shareholding ratio of the two parties in Beijing Hyundai will remain 50:50 and will not change.

According to the above-mentioned industry insiders, the Korean side and the Chinese side have previously reached an agreement on the adjustment of beijing hyundai's share ratio.

Since 2017, Beijing Hyundai has been in a state of loss due to the continuous decline in sales. In the past two years alone, its loss has been close to 11.3 billion yuan.

Based on this state, with the liberalization of the joint venture share ratio, the Korean side has been looking forward to revitalizing Beijing Hyundai by expanding the share ratio and relying on its own strength. In the face of huge losses, BAIC would rather reduce its shareholding and get rid of the burden.

In the case that both shareholders have negotiated, Beijing Hyundai's share ratio adjustment has not finally been achieved, the industry insider said, the reason is that "the state regulatory authorities do not approve."

At the beginning of 2022, after the dust settled on the change in dongfeng Yueda Kia's share ratio, Cui Dongyou, general manager of Beijing Hyundai, also mentioned the difference in the contract term between the two sides in an interview with Auto Industry and Economics - Dongfeng Yueda Kia's contract expires in 2022, and Beijing Hyundai's contract will not be adjusted until 2032, and in response to Beijing Hyundai's will not adjust the share ratio.

Auto Industry and Economics has sorted out the contract expiration time of the joint venture, except for Dongfeng Yueda Kia, the general remaining time of other companies is still more than 10 years.

It is not difficult to infer that whether the adjustment of the equity ratio of the joint venture car enterprise can be approved by the national regulatory authorities and whether the contract expires is obviously an important condition.

In contrast, Beijing Benz, its current joint venture contract is due to 2033.

NO.2

[Industry In-depth Considerations]

In addition to the constraints of the contract duration, there may be a deeper consideration behind the regulatory authorities' refusal to approve some share ratio changes.

At the beginning of this year, when talking about how to view the issue of the liberalization of the joint venture share ratio, Dong Yang, former executive vice president and secretary general of the China Association of Automobile Manufacturers, made it clear that "the change in the equity ratio of China's vehicle joint venture mainly refers to foreign holding or sole proprietorship, which cannot improve product competitiveness or reduce costs."

The implication is that expanding the foreign shareholding ratio in the joint venture will not be of much benefit to enhancing the strength of the joint venture.

And it is.

Looking back at the development process of joint venture car companies in the past few decades, for example, from the perspective of cost, China has always been the promoter of localization and cost reduction. Transferring control to a foreign party is not good for cost control.

For example, if the foreign equity ratio increases, the enthusiasm of the Chinese side in the joint venture may also decline. The Chinese market has always had its own particularities, and for foreign investment, there are good Chinese partners to make better use of China's resources.

Not to mention the era of intelligent electric, many Chinese car companies have also established their own advantages. Whether it is the understanding of new energy vehicles or the accumulation of technologies for autonomous driving and intelligent networking, China's contribution to the joint venture is increasing.

Of course, the equity ratio of the joint venture involves the distribution of interests of both parties, whether to change, in which direction to change, Dong Yang also admitted that in the end, it still depends on the contribution of the two parties to the joint venture and the economic and technological strength of both sides.

But at the same time, he also suggested that foreign investment "should not focus too much on the current distribution of benefits, but should pay more attention to the important role and development potential of Chinese partners, pay attention to the new changes in the competitive landscape and competitive environment in the Chinese market, and formulate a reasonable development strategy."

As an expert with an official background, Dong Yang's views may also reflect the state's considerations on this issue to some extent.

Maintaining the current share ratio and promoting China to enhance its value in the joint venture is more meaningful for the future development of China's auto market.

NO.3

[National Will Push]

It can be said that there are national considerations on the top and contract restrictions on the bottom, and for most joint venture car companies, it is not easy to adjust the share ratio in a short period of time.

Of course, there are also special cases.

Perhaps some people have thought of the precedent of jianghuai volkswagen.

In September 2016, JAC and Volkswagen signed a memorandum of understanding on joint venture cooperation; in June 2017, the Joint Venture Contract was formally signed, establishing a joint venture with a share ratio of 50:50, the first to break the restriction that the same foreign investor can only establish no more than two vehicle joint ventures in China.

Subsequently, at the end of 2020, Volkswagen completed the increase in the shareholding ratio of the joint venture company, and the shareholding ratio rose to 75%, becoming the first company to adjust after the release of the joint venture share ratio of new energy vehicle companies. At that time, the original joint venture contract between the two parties had not yet expired.

However, in a series of adjustments by JIANGHUAI Volkswagen, there is a key factor that cannot be ignored - the promotion of the Sino-German government. The signing of the initial joint venture contract between Volkswagen and JAC was completed under the joint witness of the two prime ministers.

In addition to JAC Volkswagen, it is not difficult to find out the stock ratio adjustment process of BMW Brilliance in 2018, which also exists in the figure of the Chinese and German governments.

In 2018, China and Germany held the fifth round of government consultations. It was during this period that the two prime ministers witnessed the signing of the latest strategic cooperation framework agreement between BMW and Brilliance. At that time, German Chancellor Angela Merkel was in power, and China and Germany had been cooperating continuously in economic and trade fields.

In contrast, the current political environment of the adjustment of the stock ratio of Beijing Benz.

In 2022, the reorganization of Germany's new cabinet was completed (for the first time, it was changed to a three-party co-ruling), and the Greens were tough on China. Previously, foreign media have said that this is likely to affect the good economic and trade cooperation between the two countries before.

But on the other hand, this year also coincides with the 50th anniversary of the establishment of diplomatic relations between China and Germany, and the new German Chancellor Scholz has not hindered trade exchanges between China and Germany since taking office. Under the upsurge of the international situation, it is not known whether there will be more cooperation at the government level between China and Germany.

Behind the commercial adjustment of giants, it is often inseparable from the will of the state.

The political game is inconclusive, and mercedes-benz's stock ratio adjustment may wish to wait for the following.