BMW is paying $4 billion to take control of its China business

BMW is racing ahead of other global automakers in China.

The German company said Thursday that it will pay €3.6 billion ($4.2 billion) to take control of its business in China. It’s the first international carmaker to announce this kind of deal since the Chinese government moved earlier this year to relax ownership restrictions.

Under the deal with its Chinese partner, Brilliance China Automotive Holdings, BMW (BAMXF) will increase its stake in their joint venture by 25% to 75%.

The deal is expected to close in 2022, the year when China will lift the ownership limit on car manufacturing operations.

The move will dramatically deepen BMW’s involvement in the world’s largest car market and help protect it against disruptions caused by trade conflicts and tariffs.

BMW sold 560,000 cars in China last year — more than the United States and Germany combined.

But that business has come under threat after Beijing placed new tariffs on American vehicles in July in retaliation for US taxes on Chinese exports worth tens of billions of dollars.

BMW tried to pass the cost of those tariffs onto customers in China by hiking prices for the SUVs it exports there from the United States, which is home to its biggest production plant.

The company followed that with a profit warning in September, blaming in part “continuing international trade conflicts.”

Betting on clean vehicles

“We are now embarking on a new era,” CEO Harald Krueger said during a speech in China on Thursday. “China is quickly becoming an important development and production base for BMW new energy vehicles.”

As part of the deal, BMW said it would invest up to €3 billion ($3.5 billion) to build new facilities and upgrade existing operations in Shenyang. It said annual production would hit 650,000 units by the early 2020s.

BMW builds several hybrid models in China, and it will export the fully-electric BMW iX3 from the country starting in 2020. It has also joined the board of Apollo, an autonomous driving project from Chinese internet firm Baidu (BIDU).

The Chinese market has gotten a lot tougher for foreign automakers this year as the wider economy has lost momentum and the trade war with the United States has ramped up.

Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight, said that the slowdown should be temporary. By taking control of its China business, BMW would be in a better position than its competitors when the market rebounds, he added.

“The car market, especially premium segments, will still grow fast when more people try to replace or upgrade their … family car,” he said.