The joint venture between car companies is coming to an end, BMW has seized power, and modern learning cannot come

Author | Pan Lei

Edit | Zi Yu

Image source | Hyundai Motor Group official WeChat ID

More than 20 years ago, when BAIC planned to cooperate with South Korea's Hyundai Motor Group, it was questioned a bit.

One of the representative views is that Hyundai Motor is not the world's mainstream car company (about 2.4 million units were sold in 2000), so the cooperation between BAIC and Hyundai is "hungry and hungry".

Even if the two sides successfully realized the joint venture and established the "Beijing Hyundai", some people believe that this is a "weak and weak alliance" - at that time, BAIC was considered to have "left behind" in the domestic automobile market, and Hyundai Motor was far from Volkswagen and Toyota.

However, in the view of An Qingheng, then chairman of BAIC Holdings, the choice of Hyundai Automobile was realistic, because the top few automobile companies were already famous.

For Hyundai's partner, he believes that (although) it is not the best, but it is the most appropriate, "the wife is not the most beautiful, but often the most suitable for two people to live."

This special relationship has continued to this day.

In recent years, Beijing Hyundai has gradually faded the aura of "modern speed" created in the first few years (the fastest sales volume exceeded one million, etc.), and after the market has receded (sales have fallen continuously in the past five years), BAIC and Hyundai Motor have not fallen into the inherent model of "poor couple Pepsi Lament", but have begun to think of ways to try to revitalize the business of the joint venture company.

One of the most important measures is that BAIC and Hyundai Motor recently announced that they will jointly invest 6 billion yuan to continue to serve their joint venture, Beijing Hyundai.

What is striking is that of the 6 billion investment, there is no information involving any change in the share ratio.

This is rare in the context of China's "lifting of the ban" on the share ratio of joint venture companies in the automotive industry, and the frequent actions of multinational car giants such as BMW, Volkswagen, Audi and Mercedes-Benz in order to increase the share ratio.

In particular, after BMW Group "acquired" as many as 25% of the shares of the joint venture company "BMW Brilliance" from its partner Brilliance Group in 2018 and became the first multinational car giant to substantially change its share ratio, turning its former partner into its own vassal "BMW model" is considered to be a common phenomenon in the adjustment of the share ratio of joint venture companies.

BMW pushes down dominoes

The "joint venture model" of the automotive industry is almost unique in the world.

Before China's accession to the WTO, the rule that multinational car companies must cooperate with local car companies after entering China and have no more than 50% of their shares appeared.

The policy began to loosen in April 2018, when the NDRC said it would fully remove foreign ownership restrictions in the auto industry by 2022.

Just six months after this positive release, BMW Brilliance released a blockbuster news - BMW announced that it would acquire 25% of BMW Brilliance from Brilliance Group for 3.6 billion euros.

As a result, BMW's proportion in BMW Brilliance has reached 75%, and Brilliance Group has changed from 50% to 25%, completely reducing it to the second boss.

This "fast and fierce" operation shocked the entire industry.

According to Qi Yumin, then chairman of Brilliance Group, the negotiations between himself and BMW on the adjustment of the stock ratio lasted for 80 days, and he was physically and mentally exhausted, and "the negotiations of a lifetime were over."

The worst part is that although the theme of the negotiations between the two sides is "stock ratio adjustment", BMW has complete control over the agenda setting, claiming that the core issue of increasing the 25% stake cannot be discussed, and (Brilliance) can only make other demands.

In this case, the negotiations between the two sides actually turned into a discussion on how BRILLIANCE would compensate BMW after it acquired an additional 25% stake.

As a result of the discussion, the BMW Group will increase its investment in the joint venture BMW Brilliance, while "ensuring that the remaining 25% of brilliance's shares will be more than the income from the previous 50% stake."

Mr. Qi said he expected someone to scold him, "because I was the first to eat crabs."

Behind Qi Yumin's rather helpless negotiation process is Brilliance's high dependence on BMW.

From 2015 to 2019, Brilliance China's net profit rose from about 3.5 billion yuan to nearly 6.8 billion, but if the profit contributed by the joint venture BMW Brilliance is removed, the 5 years will all end in losses.

This leaves Brilliance with little say in the negotiations.

One detail is that in the BMW Brilliance factory in Shenyang, the employees' blue overalls are written "BMW Brilliance" – BMW ranks ahead of Brilliance.

After BMW successfully won the dominance of the joint venture, other multinational car giants also wanted to follow suit.

Volkswagen has expressed its idea of increasing the shareholding ratio of joint ventures in China through media shouts several times, but has not received a positive response from major joint venture partners, including FAW and SAIC, which have remained silent, and SAIC has issued a statement with a needle hidden in the cotton, emphasizing the contribution and voice of Chinese shareholders.

However, the gap still appeared.

At the beginning of November 2020, Jacque Automobile announced that after the completion of the capital increase of its joint venture company, JAC Volkswagen, the share ratio was changed from 50:50 to 50:75 of JAC and Volkswagen, and Volkswagen also obtained the management right of the joint venture company.

In addition, according to a Reuters report in March 2019, Daimler wants to increase its stake in Hong Kong-listed company Baihai Automobile and the joint venture company Beijing Benz.

But then BAIC Group consolidated its partnership with Daimler through cross-shareholding, that is, holding 9.98% of Daimler's shares (the largest single shareholder) – if Daimler wants to increase its stake in joint ventures such as Beijing Benz, BAIC will also increase its shares in Daimler at the same time to hedge the loss of rights.

Audi has also gained in terms of share ratio.

Audi FAW New Energy Automobile Co., Ltd., which was established at the beginning of last year (Audi's name also ranks before FAW), Audi and Volkswagen accounted for a total of 60%, faw accounted for 40%, in fact, took a key step in the adjustment of the stock ratio.

Tian Yongqiu, a veteran of mergers and acquisitions in the automotive industry, told Chuangbang that under normal circumstances, joint venture companies are exported by foreign parties to export brands and technologies, and the Chinese side provides factories and land, and the reason why foreign parties want to increase the share ratio is to obtain as much profit as possible from the joint venture companies. "At present, joint ventures can be divided into three categories: good profits, poor profits, and temporary difficulties but still opportunities."

He believes that BMW Brilliance belongs to the first category, because the profit performance is good, so the willingness of foreign parties to increase their shares is the strongest, and it just so happens that Brilliance also has a strong voice in the joint venture because of the performance relationship, so it has become the first object of the foreign party to change the stock ratio.

But Beijing Hyundai obviously does not belong to this situation, so it has not followed in the footsteps of BMW Brilliance.

Beijing Hyundai cannot be abandoned

Tian Yongqiu believes that Beijing Hyundai belongs to the third category, that is, it is currently facing greater difficulties, but it has not yet reached the point where both Chinese and foreign countries are disgusted.

Public information shows that Changan Suzuki, Dongfeng Peugeot Citroen, Dongfeng Renault, Qoros Automobile (Chery and Israel Quantum Company joint venture stage), etc., have been sluggish in sales for many years and have serious losses, so both sides of the joint venture have no intention of continuing to operate, and want to get rid of their hands as soon as possible to throw away the burden.

In 2021, Beijing Hyundai's sales volume was 385,000 units, down 23.3% year-on-year, still in a downward channel, but much better than the joint ventures such as Suzuki, Renault and Qoros that were in trouble that year. The three sold 87,000 units, 18,500 units and 24,000 units in the year before they exited China.

In addition, Beijing Hyundai has nearly 600 dealers and four giant factories in Chongqing, Beijing and Cangzhou.

It is also worth noting that despite the poor performance of Beijing Hyundai in recent years, Hyundai Motor Group has actually performed well at the global level, achieving a total of 6.667 million unit sales in 2021, ranking fourth after Toyota, Volkswagen, and the Renault-Nissan-Mitsubishi alliance.

This means that once sales in the Chinese market pick up, Hyundai Group's global performance will be even higher.

Another advantage of the Chinese market is electrification, which has been the world's largest electric vehicle sales for seven consecutive years (3.521 million units in 2021).

Hyundai Also happens to have a good technical accumulation and parts supporting capabilities in the field of electric vehicles.

Hyundai's NEXO model is the world's highest-selling hydrogen fuel cell model, with global sales reaching 20,000 units by October last year, while South Korea has a number of global head battery factories such as LG Chem and Samsung SDI.

Li Xingxiang, who is familiar with the Korean new energy market and is currently the CEO of Shanghai Sailand Hydrogen Energy Technology, told Chuangbang that South Korea is in a leading position in the field of new energy, and hydrogen fuel cell related technologies have been developed for many years, but the future of hydrogen energy is in China, because "the Korean domestic market is too small."

This means that for Hyundai Group, China belongs to a strategic market that cannot be abandoned, and Beijing Hyundai must be saved.

BAIC also has high expectations.

At the peak of Beijing Hyundai, its sales accounted for 40% of the entire BAIC Group, playing an absolute backbone role.

In Tian Yongqiu's view, Beijing Hyundai has achieved quite brilliant results in history after all (sales reached 1 million vehicles in 2013, and cumulative sales of 10 million vehicles at the end of 2018), so it is the best choice for such enterprises to maintain the status quo of the stock ratio, and both China and foreign parties can continue to look for a comeback plan in a relatively stable state.