BMW ramps up investment in China to meet electric demand

BMW headquarters in Germany

BMW ramps up investment in China to meet electric demand

Now that the Chinese government is allowing foreign companies to take majority control of their Chinese joint ventures, BMW becomes the first automaker to take advantage of the new rules in a multi-billion dollar deal to take a majority stake in a joint venture with a Chinese company.

The German carmaker announced Thursday that they would extend the contract term of the joint venture BMW Brilliance Automotive (BBA) in northeast China and to increase investment for its production capacity expansion. China auto sales dropped in July and August.

In 2017, BMW sold 560,000 vehicles in China, two thirds of which were manufactured in its Shenyang factories.

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Rather than retreating from the Chinese market, BMW is doubling down on its investments, which will include building a $3.5 billion plant in Shenyang.

BMW is one of the biggest exporters of vehicles from the United States to China, putting the auto maker firmly in the crosshairs of a trade war that has seen both sides raise tariffs on a multitude of goods, including cars. China said in April it is scrapping the limit for electric-car ventures as soon as this year.

China is phasing in the new rules over the next several years, giving priority to producers of so-called "new energy vehicles" (NEVs) which include plug-in hybrids and fully electric models.

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The move is likely to spur BMW to shift more production to China, helping boost profits amid a worsening trade war between Washington and Beijing that has raised the cost of BMW importing cars manufactured at its SC plant. BMW said the changes to its joint venture would come into effect in 2022, in line with the new regulations.

"BMW Brilliance Automotive is a unique success story and provides an outstanding example of a strong partnership built on trust", added Yumin Qi, Chief Executive Officer of Brilliance Automotive Group Holdings.

In the following three to five years, the total annual production capacity of BMW automobiles at the plants will increase to 650,000 units, creating 5,000 new jobs.

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"A smaller stake in the joint venture means less earnings contribution to Brilliance China and that's the only thing investors are sure of right now", said Angus Chan, Shanghai-based an analyst at Bocom International Holdings Co.

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