Trade war forces BMW to invest 3,6 billion extra in China
Handicapped by the escalating trade war between the US and China, the German car manufacturer, BMW, has announced that it will invest an additional 3,6 billion euro in its local production in China.
By doing so, BMW is the first foreign manufacturer to take advantage of the new, more liberal and foreign investor friendly legislation that China has announced recently. The German manufacturer is one of the ‘collateral damage’ victims of the escalation of the trade war between the Trump administration in Washington and Beijing.
Big in the States
BMW has built one of the largest car manufacturing plants in the world in Spartanburg (South-Carolina, US). In 2017 it has exported 70% of the cars built there outside the US, for a total value of 10 billion dollar. The Bavarian manufacturer is the biggest exporter of cars ‘made in the USA’ and also the most important exporter of cars towards China.
From now on BMW will have to pay 25% import taxes on these cars being sold in China and it’s obvious that this causes the manufacturer to look for other opportunities and solutions.
Even bigger in China?
As a logical reaction to this trade war, manufacturers are trying to build more cars where they are sold. Last year BMW sold 600.000 vehicles in China, of which 70% were already assembled locally. Now BMW wants to increase this percentage further.
Since 15 years BMW builds cars in China in a joint venture with local manufacturer, Brilliance, in Shenyang (North-East China). Now it will further invest 3,6 billion euro in this joint venture, to increase the capacity of the facilities to 650.000 vehicles per year at the beginning of the next decade by enlarging the site of the Tiexi plant.
Starting a new era
“We are starting a new era”, has announced Harald Krüger, BMW’s CEO. “China is rapidly becoming an important development and production base for BMW’s vehicles with alternative energy propulsion.”
With his investment BMW becomes the main shareholder (75% instead of the 50% now) of the joint venture BMW-Brilliance Automotive Ltd. The German manufacturer will therefore be the first foreign company having a majority stake in a Chinese company. The deal will be finalized in 2022, when the restrictions on joint ventures in car manufacturing will be totally lifted.
Worried about the ever increasing air pollution in its cities, Beijing wants to impose on all manufacturers fairly ambitious quota for ‘clean vehicles’, calculated with a sort of credits system. As a reaction foreign manufacturers, like Nissan and Volkswagen, have already announced additional investments in China for the production of electric vehicles.
BMW is following the same path if you look closely at what its CEO has said. The fact that the investment and ownership restrictions for foreign companies will already be abolished this year for electric vehicles is surely playing an important role.