expansion of production
BMW has full access to China partners
2/11/2022 3:04 p.m
China has allowed foreign corporations to hold majority stakes in joint ventures for some time. BMW takes advantage of this and expands its stake in Brilliance. The step has consequences for the figures and could also pay off for the shareholders.
Car maker BMW has been given the green light to acquire a majority stake in its joint venture with Brilliance in China. The company has received the relevant approval, BMW said. The Munich-based company will hold 75 percent of the shares in BBA in the future, and the Chinese partner Brilliance China Automotive the rest beyond that,” said BMW CEO Oliver Zipse.
The revaluation will result in a book profit of seven to eight billion euros, it said. After the takeover, BMW can fully consolidate its figures in China. As a result, sales and operating profit (EBIT) of the auto segment rose significantly in the current year, BMW explained. In 2020, BBA had made a profit of 2.7 billion euros with sales of 23.9 billion euros, the profit margin was higher than that of BMW itself. The figures for 2021 are not yet available.
Cash inflow should also increase if BMW gains access to BBA’s coffers; a figure of five billion euros is expected here. Details are to be given in the annual report, which will be published in mid-March.
700,000 vehicles manufactured in China to date
The move was well received on the stock exchange: BMW shares rose by 2.7 percent to 95.30 euros. Jefferies experts referred to the cash inflow and book profit. If one assumes that the future dividend policy will continue to relate to net profit and that the payout will be 30 to 35 percent, an additional 3.75 billion euros should be paid out to shareholders for 2022.
With the step, BMW benefits from relaxed regulations in China: Only since this year have foreign car manufacturers been allowed to hold the majority in joint ventures in the People’s Republic. In October 2018, the Munich-based company agreed to increase its stake in the joint venture from 50 to 75 percent. BMW will pay 3.6 billion euros for this.
China has long been the most important single market for BMW, and the plants there are being expanded. For the Munich-based company, this offers the opportunity to become less dependent on exports in the China business. In 2021, BMW sold 846,237 vehicles in China, more than in any other single market. More than 700,000 cars were manufactured in the People’s Republic. The capacities are now being expanded: a factory in Shenyang in the Dadong district is being expanded, and a completely new plant is being built in the Tiexi district.
More combustion and electric cars are to be manufactured there. Among other things, the X5 city SUV, which previously came from the Spartanburg plant in the USA, is also to be manufactured in the People’s Republic. Customs barriers had recently made the off-road vehicles from the USA more expensive for the Chinese market.