BMW raises stake in China car venture with US$4.1 billion deal

BMW AG is raising its stake in Brilliance China Automotive Holding from the existing 50 percent to 75 percent, through a top up of US$4.1 billion (€3.6 billion), the carmaker said in a statement on Thursday.

The German firm will be the first foreign carmaker to participate in China’s recent revised policy allowing foreign firms to hold a majority share in local partnerships.

The deal which is expected to complete in 2022 when rules limiting foreign ownership for all auto ventures are lifted, will allow BMW increased manufacturing capacity and grow its car production – including electric cars - prowess in China. The agreement will hence give the group a larger share of the earnings generated from the market.

For decades, China had a 50:50 joint-venture rule which limited global companies from growing their stake in the Chinese market. The policy tweaks which China announced in April, shows the Chinese government opening up its economy to foreign ownership.

As a major exporter of vehicles from the United States to China, BMW had earlier warned that trade tensions between the two nations could put a drag on the carmaker’s profits.

Brilliance China, which has a market capitalisation of about US$7 billion, has seen its shares battered by the ongoing speculation of the increased stake from BMW. The decline has been led by investor concerns as the firm will receive a smaller portion of earnings from the joint venture following the deal arrangement. The stock has slid 49 percent this year.

BMW’s shares have shrunk 15 percent year-to-date. The counter closed on Wednesday 1.36 percent or €1.04 lower, at €75.35.

Under the joint venture with Brilliance China, BMW is slated to build its first pure electric vehicle in China by 2020. The model will be sold in China and exported to other markets.