BMW prepares to plough billions into Chinese joint venture

BMW (Source: Getty)

BMW is prepared to spend big in order to take control of Brilliance Automotive (BBA), its joint venture in China, it emerged today.

The German manufacturer is set to part with €3.6bn (£3.14bn) to up its stake in the company from 50 per cent to 75 per cent, and will also invest more than €3bn to expand its existing production operations in China, where BMW sold more cars last year than in Germany and the United States combined.

Read more: BMW warns of falling profit as trade and regulation pressures bite

“We are consistently following our growth strategy for China. With continuous investment, as well as the development and production of electric vehicles, we underline China’s importance as a dynamic growth market for us,” said Harald Krüger, chairman of BMW's management board.

The Mini manufacturer builds several hybrid models at its Shenyang facility. Krüger said the annual production capacity at the plant would gradually increase to at least 650,000 cars from the early 2020s, creating 5,000 new jobs.

In 2017, BMW more than doubled its sales of electric cars in China from the previous year and expects this growth to continue in 2018.

BMW’s move to further the growth of its brand in China comes after the Chinese government made plans to relax ownership rules for foreign car companies earlier this year.

Currently foreign firms that want to enter China’s enormous car manufacturing sector must have a joint venture with a local firm, and are not permitted to own more than a 50 per cent stake in the venture.

This rule, in place since 1994, has restricted many global brands from properly tapping the world’s biggest car market.

Read more: Tesla raises fears over China tariffs despite beating Model 3 targets

But the rule is set to expire in 2022, when BMW expects to hold a 75 per cent stake in BBA. Chinese partner Brilliance China Automotive Holdings will see its 50 per cent stake cut in half, but the two companies will continue working together until 2040.

"Today, as well as celebrating 15 years of a strong and reliable partnership with Brilliance, we are also laying the foundation for further growth of the BMW brand in China,” said BMW's chief financial officer, Nicolas Peter.

BMW's investment push in China will be viewed against the backdrop of Beijing’s decision to introduce retaliatory tariffs on American vehicles this summer, which was followed by a profit warning from BMW in September citing “continuing international trade conflicts”.