BMW aiming for first-mover benefits by taking advantage of China's new JV rules

Source:Global Times Published: 2018/10/14 18:18:39

BMW has drafted a Chinese JV owner manual for its rivals. The luxury carmaker says it will pay $4.2 billion to take control of its venture with Brilliance China Automotive, making it the first to take advantage of new rules allowing foreign brands to do so.

Share weakness has helped it drive a bargain, even if the deal doesn't close until 2022. Others like Daimler may follow in the slipstream.

The move makes sense for the German heavyweight in more ways than one. It is wise to be first in line to accept a market reform gift offered by China - in this case, the ability to jump from 50 percent to 75 percent ownership. BMW also announced plans to put $3.5 billion into new and existing plants in northern China, creating 5,000 new jobs in the  region.

Both steps may help secure tariff exemptions for cars it manufactures in the US to be sold in China. Without that, Evercore ISI analysts estimated China's tariff retaliation in the spat with the US could cost BMW and compatriot Daimler $965 million and $765 million respectively.

But the Germans also picked a good time to haggle. Chinese stock markets have struggled amid the trade tension and domestic automakers have suffered more than most, as the end of subsidy schemes has sapped demand for homegrown marques.

Hong Kong-listed Brilliance has seen its value almost halve so far this year and the stock has underperformed the Hang Seng China Enterprises benchmark by 38 percentage points. Its first-half revenue contracted by a quarter.

There are significant open questions. It's unclear when the money will change hands and whether the current price is guaranteed.

The deal can't close until China formally lifts the restriction. A lot could happen in four years, but if the trade war eases, BMW may have locked in a tidy profit.

Watching on the sidelines are Daimler - which has the same US production headache as BMW, and a similarly beat-up JV partner in BAIC - plus Nissan, which is paired with Dongfeng Motor. With markets in free fall they might wait a while longer. BMW, though, has claimed first-mover advantage.

The author is Pete Sweeney, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.
Newspaper headline: BMW aiming for first-mover benefits by taking advantage of new JV rules

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