BMW takes over Chinese venture

BMW headquarters in Germany

German automaker BMW Group plans to secure control of its joint venture in China through a deal that will provide the company more power over its business in the world's largest auto market.

The German luxury-car maker agreed to pay 3.6 billion euros ($4.1 billion) to increase its holding to 75% from the current 50%, the carmaker said in a statement Thursday.

In August, China's new vehicle sales continued to fall, following a drop in July.

"Given the trade dispute between the United States and China, there is a powerful incentive for automakers to produce vehicles in the market where they sell them", said independent auto industry analyst James Chao.

BMW will start making its first pure electric vehicle in China under the joint venture with Brilliance by 2020.

"We are now embarking on a new era", BMW CEO Harald Kruger said in a speech in the northeast Chinese city of Shenyang where the joint venture is based.

In addition, the Chinese government hope to see at least 20% of cars sold to be electric or rechargeable-hybrid vehicles by 2025. The BMW-Brilliance deal is scheduled to close in 2022, the year the requirement ends. In 2017, the BMW Group more than doubled its sales of electrified vehicles in China from the previous year and expects this growth to continue in 2018.

Unlike BMW, most foreign automakers, including Ford, General Motors and Volkswagen AG, have said they don't plan to alter their Chinese joint ventures, most of which have been operating for twenty years or more. BMW said the changes to its joint venture would come into effect in 2022, in line with the new regulations.

The two companies had extended their joint venture contract until 2040 and announced a plan to pump 3 billion euros into expanding their auto plants in Liaoning Province - ramping up production capacity to 650,000 cars early next decade while creating 5,000 new jobs.

Brilliance China's shares in Hong Kong have plummeted this year and were yesterday suspended from trading.

Krueger said China will not only become BMW's biggest market but also an important manufacturing hub to make cars for export to other markets, according to a Chinese government website.

BMW is one of the largest exporters of vehicles from the USA to China, putting the company in the crosshairs of a trade war which has seen the two countries increase tariffs on a massive amount of goods, including automobiles.

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