BERLIN (Reuters) – BMW will pay 3.7 billion euros ($4.2 billion) to take majority control of its Chinese joint venture after securing the necessary licence from Beijing, as global automakers seek a tighter grip on business in the world’s biggest car market.
The German carmaker said on Friday it was increasing its stake in the venture with Brilliance Auto Group to 75% from 50%, as announced in 2018 when China said it would start relaxing ownership rules in the auto industry.
China said at the time it would remove foreign ownership caps for companies making fully electric and plug-in hybrid vehicles in 2018, for makers of commercial vehicles in 2020, and for the wider car market by 2022.
BMW said the deal would have a one-off positive effect of 7-8 billion euros ($8-9 billion) on the financial results of its automotive business, and boost free cash flow by about 5 billion euros.
“Our extended joint venture contract lays the foundation for further mutual growth and progressive development … It paves the way for balanced development in the three main regions of the world,” Chief Financial Officer Nicolas Peter said.
BMW was the first automaker to state in October 2018 it would take control of its main joint venture in China, which was founded in 2003 and is currently in place until 2040.
Volkswagen took majority control of its electric vehicle production joint venture JAC Volkswagen in 2020.
Mercedes-Benz owns 49% of its joint venture in China, Beijing Benz Automotive. Reuters reported in 2019 it was seeking to raise its stake, but faced opposition from its Chinese partner BAIC.
BMW expects sales in China to grow into 2022, its CFO has said, after seeing 9% growth in BMW and Mini deliveries last year to 846,237 vehicles. The BMW Brilliance Automotive joint venture produced 700,000 vehicles in 2021.
Based in Shenyang, one plant in Dadong district is currently being expanded, while a new one that will build fully-electric models alongside hybrids and internal combustion engine cars is also under construction alongside an existing plant in Tiexi.
BMW will add production of its X5 model in China, previously imported from the United States, in the second quarter of the year at the BMW Brilliance joint venture, a U.S. supplier source told Reuters in December.
($1 = 0.8768 euros)
(Reporting by Victoria Waldersee; Editing by Kirsti Knolle and Mark Potter)