German automaker BMW is taking a majority stake in its China joint venture and investing 3 billion euros (US$3.5 billion) in factories there, underscoring the importance of the Chinese market as the company prepares to meet increased demand for electric vehicles.
As part of the deal, BMW will increase its stake in the joint venture with Brilliance China Automotive, its Chinese partner, from 50% to 75%, sources with knowledge of the matter confirmed.
In August, China's new vehicle sales continued to fall, following a drop in July. China is a key focus for all major auto companies, but sales of luxury vehicles have been coming off as the trade war with the USA damps consumer demand.
BMW will start making its first pure electric vehicle in China under the joint venture with Brilliance China by 2020.
To force the issue, and to hit back at China for alleged theft of US intellectual property, US President Donald Trump has slapped tariffs on about half of the imports from China.
Beijing has been keen for global auto makers to invest more in China, including easing restrictions that cap foreign ownership of electric vehicles businesses at 50% this year. The BMW-Brilliance deal is scheduled to close in 2022, the year the requirement ends. The move gives BMW more control over its automotive business in China, which is the world's largest auto market.
The move will likely spur BMW to shift more production to China, helping to protect profits amid a whipsawing trade war between Washington and Beijing that has raised the cost of BMW importing cars manufactured at its United States plant in SC.
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As a result of the joint venture contract, the new agreement is valid for 22 years until 2040 and will further deepen the current successful collaboration between the two companies.
BMW finance chief Nicolas Peter, however, said the firm remained bullish about its top market.
In its product range, BMW Brilliance Automobile owns the BMW brand and the ZINORO brand.
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.
The company sold 560,000 cars in China in 2017.
The BMW-Brilliance joint venture will invest about 3 billion euros to expand its plant structure, raising annual manufacturing capacity to more than 650,000 vehicles from the early 2020s on.