Automaker BAIC Motor Corp. Ltd. saw its shares tumbled nearly 14 percent on Wednesday following news about Germany’s Daimler AG considering raising its stake in its joint venture with its Chinese partner to gain more control over its operations in the world’s biggest market.
Sources familiar with the matter stated on Tuesday that Daimler has shown interest in increasing its holding to at least 65 percent from 49 percent.
Estimates by analyst Christian Ludwig showed a 16 percent stake in the BAIC venture would be valued between €2.3 billion and €3 billion.
Daimler declined to comment on talks with BAIC, although said it is satisfied with the setup in China and its partnerships.
BAIC denied the report, while an analyst said such move is unlikely in the short term.
Following the news, BAIC stock dropped to as low as HK$4.28 on Wednesday but recovered some losses to trade down 11.3 percent to HK$4.39. The stock has lost more than half so far this year.
Daimler’s plan echoes a similar move carried out by luxury carmaker BMW AG in October, when it agreed to pay €3.6 billion ($4.2 billion) to take majority control of its main China joint venture, BMW Brilliance Automotive Ltd., making it the first company to make use of the policy change.
Brilliance China Automotive Holdings Ltd.’s stock fell almost 30 percent due to the news, with analysts stating that the arrangement would significantly reduce Brilliance China’s long-term value even as Beijing eases foreign ownership rules.
The Daimler-BAIC venture is less likely to see a change in the stock ration in the short term, said equity analyst Patrick Yuan, adding that the Stuttgart-based company has considerably invested in BAIC, which could in turn help Daimler in areas like new-energy credits.
The joint business manufactured 427,000 vehicles for Daimler in 2017, representing over two-thirds of the German group’s Chinese sales, which gained 12.7 percent during the January-October period this year, reaching nearly 551,000 units.
China Eases Rules on Automotive Ventures
The media report comes as China loosens its rules around the automotive industry this year, after decades of limiting foreign car firms to owning a minority stake with a local partner.
Global car companies are set to be granted privileges to own majority stakes in their Chinese joint ventures by 2022, and the requirement to team up with a local firm has already been lifted for electric vehicle businesses.
A strong Chinese business is vital for Daimler to sustain financial control and offset headwinds in a slow global auto market.
While the tit-for-tat trade war is between the US and China, Daimler and BMW are among the most affected as they import luxury cars into China after building them in the US.
US President Donald Trump has tweeted that China would reduce and remove tariffs on US-made automobiles, which would provide the German companies some relief.
Trump, however, has not provided further details of how much of a reduction China had agreed to. Beijing also did not immediately confirm that any deal had been arranged to revise the tariffs.
Meanwhile, Director of the National Economic Council Larry Kudlow stated that an agreement Trump said he had secured from China to cut or eliminate tariffs on US-made cars is not final, backtracking from Trump’s announcement.
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