BMW races into China amid the USA – China Trade War

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| The European | 12th October 2018
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BMW is largely known for its global presence and manufacturing sites in different countries. However, it will come as a surprise to many readers that the BMW’s largest manufacturing plant is in Spartanburg, South Carolina, USA.

BMW Spartanburg, South Carolina, USA Plant – facts and figures

Plant Size: (approximately) 7-million-square-feet under roof
Opened for production: July 11, 1994
The first vehicle produced: White 318i, September 8, 1994
Average daily output: Around 1,400 vehicles
Total production since 1994: More than 4 million vehicles (since 1994)
Number of jobs: 10,000
South Carolina Suppliers: More than 40
U.S. Suppliers: 300

Production (at Spartanburg Plant) – for the month of September 2018

X3 Vehicles: 11,521
X4 Vehicles: 4,331
X5 Vehicles: 6,658
X6 Vehicles: 2,700

Total Vehicles: 25,210

BMW and China

Brilliance China Automotive Holdings Ltd. is an investment holding company principally engaged in the manufacture and sales of BMW vehicles in China.

While USA President Donald Trump initiated a trade war with China and is adamant in pursuing a “take the bull by its horns” approach, China is shifting its economic strategy to allow more foreign investment in the manufacturing sector by relaxing foreign ownership rules. This strategic shift has also been applied to the Chinese auto industry. China is the world’s biggest auto market.

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Reuters (11 October 2018) reported,

“Germany’s BMW will pay 3.6 billion Euros (US $4.2 billion) to take control of its main joint venture in China, the first such move by a global car maker as Beijing starts to relax ownership rules for the world’s biggest auto market”.

BMW plans to increase its stake in its venture with Brilliance China Automotive Holdings Ltd to 75% from 50%, with the deal closing in the year 2022 when rules capping foreign ownership for all auto ventures are lifted.

BMW Chief Executive Harald Kruger announced the auto maker’s plans in a speech (delivered in Shenyang, China – where the joint venture is located) and said, “We are now embarking on a new era”. He thanked Chinese Premier Li Keqiang who he said had “personally supported” the plan.

Kruger said the joint venture, BMW Brilliance Automotive, planned to add a “new plant” at its site in the city (Shenyang), spending over 3 billion Euros on a large-scale expansion of the existing production facility.

The term (tenure) of the joint venture with Brilliance China Automotive Holdings Ltd is also to be extended to the year 2040 (existing – 2028).

What does it mean for BMW?

BMW is one of the biggest exporters of vehicles from the United States to China. The trade war, which has seen both sides raise tariffs on a multitude of goods, including automobiles has severely affected the profits of the automaker.

Right now it seems that BMW has plans to shift the bulk of its production from the USA to China.

Reuters quotes an independent auto industry analyst who says,

“Given the trade dispute between the U.S. and China, there is a powerful incentive for automakers to produce vehicles in the market where they sell them (China). Control of the joint venture could spur BMW to bring production of models like the BMW X4, X5 and X6 sport utility vehicles, which are currently built in the United States, to China.”

It is pertinent to mention here that BMW has stopped (The New York Times – 19 July 2018) “exporting” (it is still manufacturing) the X3 crossover from Spartanburg to China and began making more of the S.U.V.s in plants in Shenyang, China, and Rosslyn, South Africa.

The present situation tells that BMW is earning more profits by manufacturing its vehicles in China. Manufacturing in the USA is no longer viable for BMW. There is no end in sight to this US-China trade war.

Effects on the American economy

A New York Times (19 July 2018) report states, “One in 10 people In Spartanburg, South Carolina earns a living making BMW vehicles or its parts”.

A member of the County Council says,

“BMW saved Spartanburg and transformed South Carolina into a manufacturing Mecca to the world”.

Spartanburg, South Carolina is now no more the largest manufacturing site of BMW. Presently, BMW production in China has overtaken its US manufacturing plant production.

The shifting of BMW’s production (major share) to China from South Carolina, USA will lead to local unemployment. Employees of suppliers of BMW vehicle parts will also get affected.

China is the future for BMW

BMW is working on a new venture for its Mini brand with China’s Great Wall Motor Co.

China is aggressively making efforts for getting rid of pollution in its smog-ridden cities. Beijing is encouraging electric vehicle manufacturers to invest in its auto industry. BMW is well positioned to become the number one selling luxury electric vehicle in China.

The growing interest of China in electric vehicles can be witnessed by Beijing’s approval of Tesla Inc for forming a wholly owned China manufacturing and sales company in Shanghai. It will be the first time a foreign car maker will be able to establish a full presence in China without a partner.

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