In the post-joint venture era, how long can the “transnational marriage” of car companies last?

“Why do you only talk to us about technology introduction and not about joint ventures?”

In October 1978, when Li Lanqing, former member of the Standing Committee of the Political Bureau of the CPC Central Committee and Vice Premier of the State Council, was negotiating with General Motors about the introduction of technology for the heavy-duty vehicle project, GM Chairman Thomas Murphy asked this question.

“Joint venture” – in today’s Chinese capital market, this concept has long been commonplace.

But at that time, Li Lanqing and the others did not know the exact meaning of “joint venture”. Thomas Murphy explained that a joint venture is to put our wallets together and jointly run a joint venture. It’s like ‘marrying’ and building a common ‘family’”.

On the one hand, Li Lanqing thought it was interesting, but on the other hand, he thought it was impossible. He thought to himself, “You are a big capitalist, and I am a member of the Communist Party. Can I ‘marry’ you?”

But later, under Deng Xiaoping’s decision, in May 1983, Beijing Automobile Works and American Automobile Company jointly established Beijing Jeep, and China’s first joint venture car company was born.

In the post-joint venture era, how long can the “transnational marriage” of car companies last?

In 1985, the first JEEP Cherokee assembled by the Beijing Jeep joint venture rolled off the production line

As soon as the gate was released, a group of joint venture car companies such as SAIC Volkswagen, FAW Volkswagen, Shenlong Automobile, Shanghai GM and others cut ribbons to open their doors for banquets. The era of “transnational marriage” in China’s auto industry also kicked off.

However, in order to protect China’s local auto companies, in 1994, the Chinese government issued the “Automotive Industry Policy”, which proposed two restrictions on foreign investment: first, foreign car companies should not have more than two joint venture companies in China; The shareholding ratio in the joint venture shall not exceed 50%.

In the following decades, the big parent of the Chinese government, on the one hand, hopes to cultivate the independent research and development capabilities of Chinese local car companies and promote the development of the industrial chain through “market-for-core technology”; Progress has gradually eased the restrictions on foreign shareholding in the auto industry.

However, according to the “Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Edition)” newly promulgated by the National Development and Reform Commission at the end of December last year, starting from January 1, 2022, the state will cancel passenger car manufacturing in the field of automobile manufacturing. Restrictions on foreign shareholding ratio and the restriction that the same foreign investor can establish two or less joint ventures in China to produce similar vehicle products.

This means that starting from 2022, the 50:50 share ratio limit faced by joint venture car companies for many years will become a thing of the past, and foreign car companies in the Chinese market will no longer have to find someone to work with, but can go it alone.

What situation will the Chinese car companies face among the joint venture car companies that have always been ridiculed by the outside world as “laying flat to make money”? Can this “transnational marriage” in China’s auto industry be separated? Do you have to leave?

Early adopters: Who benefits?

The first early adopter after the restrictions on foreign shareholding ratios in the auto industry were fully liberalized was the BMW Group.

Recently, BMW Group announced that from February 11, 2022, the new joint venture contract of BMW Group’s joint venture in China, BMW Brilliance, will come into effect. BMW Group’s shareholding in BMW Brilliance will be changed from 50% to 75%. The shareholding ratio was changed from 50% to 25%, and the contract period was extended to 2040.

More importantly, BMW’s newly added 25% stake in BMW Brilliance will be fully incorporated into the BMW Group’s financial statements, and BMW has been watching this part of revenue for a long time.

Over the years, Brilliance China’s autonomous vehicle segment has experienced sluggish sales and continuous losses. It is all thanks to BMW Brilliance’s “blood transfusion” to be able to “eat”.

From the data, in the first half of 2020 (due to the suspension of trading for a long time, the latest financial report data disclosed by Brilliance China only ends in the first half of 2020), BMW Brilliance contributed a net profit of 4.383 billion yuan to Brilliance China, a year-on-year increase of 23.4%, while In the same period, Brilliance China’s revenue was only 1.45 billion yuan, a year-on-year decrease of 23.84%.

In other words, without BMW Brilliance, Brilliance Group’s profits would be negative.

Therefore, in April 2018, when the National Development and Reform Commission announced that it would remove the restriction on the foreign shareholding ratio of passenger cars in 2022, in October of that year, the BMW Group took the lead in announcing that it would spend 3.6 billion euros to increase its 25% stake in BMW Brilliance.

After four years of waiting, starting this year, the BMW Group has finally officially become the first foreign car company to hold a controlling stake in a traditional joint venture car company after the restrictions on foreign shareholding in passenger cars in China were lifted.

As for the field of new energy vehicles, the first person to eat crabs is Tesla.

In 2018, China lifted the restrictions on foreign shareholding in the field of special-purpose vehicles and new energy vehicles. At that time, Tesla said that it would set up a wholly-owned new energy vehicle factory in Shanghai, and then provoked a lot of confusion in China’s new energy vehicle market. water.

Volkswagen Group is one of the other active players that has increased its shareholding ratio.

As early as the beginning of 2019, Volkswagen Group CEO Diess has repeatedly released signals in media interviews that he intends to adjust the shareholding ratio of its joint venture car companies. At that time, Volkswagen had three vehicle joint venture companies in China, namely FAW-Volkswagen. , SAIC Volkswagen and JAC Volkswagen.

In the face of Volkswagen’s test, SAIC Group responded directly, saying that this was a unilateral statement from Volkswagen, FAW remained silent, and JAC said that there was great uncertainty.

Finally, in December 2020, Volkswagen officially completed the increase in its stake in Jianghuai Volkswagen Co., Ltd. (hereinafter referred to as “JAC Volkswagen”). Anhui.

Then Volkswagen gradually improved the position of Volkswagen Anhui in its future strategy. This is due to Volkswagen’s commitment to Jianghuai Volkswagen’s capital increase, and also because Volkswagen has acquired a controlling stake in Volkswagen Anhui. Afterwards, it can not only take over the management rights of Volkswagen Anhui, but also obtain a higher proportion of profit dividends.

According to the announcement issued by Jianghuai Automobile on the eve of Volkswagen’s capital increase, Volkswagen Group promised to grant JAC Volkswagen 4-5 pure electric vehicle brand products, with the goal of producing 200,000-250,000 vehicles in 2025 and 350,000-400,000 vehicles in 2029. , the total revenue is expected to reach 30 billion yuan and 50 billion yuan respectively.

Volkswagen has begun to have a relationship between its three vehicle joint ventures in China.

Therefore, when Volkswagen announced the 2030 NEW AUTO strategy in July 2021, Volkswagen abandoned the North and South Volkswagen and turned to Volkswagen Anhui, choosing it as the local production base for Volkswagen’s next-generation mechatronics platform (SSP platform). .

There is no doubt that Volkswagen has high hopes for the SSP platform.

According to the introduction, the SSP platform can integrate Volkswagen’s MQB/MSB/MLB/MEB/PPE 5 platforms to produce the future pure electric models planned by Volkswagen. It will be put into production in 2026 and will mass-produce more than 40 million vehicles in the whole life cycle. .

CITIC Securities believes that according to the Volkswagen Group’s electric vehicle plan, Volkswagen Anhui is expected to be built into the core production base of its next-generation pure electric vehicles.

“Volkswagen is the vane of the transformation of traditional car companies into electrification. The new SSP platform will be a ‘super platform’ with strong competitiveness in terms of cost and scalability.” CITIC Securities said that compared with the era of fuel vehicles, Volkswagen The control over the production, procurement, and sales of its electric vehicle business in China will be significantly enhanced.

In addition to BMW and Volkswagen, in the passenger car market, another foreign car company that has quietly acquired a controlling stake in a joint venture car company in China is Ford.

At the end of December 2021, Jiangling Ford Motor Technology (Shanghai) Co., Ltd. was registered and established. It is owned by Jiangling Motors and Ford Motors with 51% and 49% respectively. However, since Ford Motor also holds 32% of the shares of Jiangling Motors, after the equity penetration, Ford actually holds about 65% of JMC Ford.

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Published on 09/05/2022