Auto Industry

Mini moment

Great Wall in partnership talks with BMW


GWM boss: Wei Jianjun

Two cars made their debuts in 1959 and both were described as icons of their time. One rolled off the production line in the summer of that year and soon became emblematic of Britain’s Swinging Sixties. It was called the Morris Mini-Minor (in 1969 the marque would get its more familiar name, the Mini). The other car made its debut at a military parade to celebrate the 10th anniversary of the People’s Republic of China. It was called the Hongqi CA72 and featured five flags representing workers, farmers, businessmen, intellectuals and soldiers. That said, none of the groups on the list got to ride in the car as it was initially reserved for senior Party officials.

British ownership of the Mini ceased in 1994 when the brand was sold to BMW and its German owner is now keen to increase sales to China by localising production there. In 2016, BMW exported 35,000 Minis to China, representing 9% of its global sales. But the share is well below sales of BMW’s other core brands, largely due to import tariffs, which have priced the car out of the affordable bracket it has always targeted in the West.

This may now change following an announcement that Great Wall Motor (GWM) and BMW are discussing a joint venture. (GWM’s stock price jumped 12.7% in the day prior to being suspended pending the announcement.)

GWM is China’s only major car manufacturer without a foreign joint venture partner and analysts say a tie-up with BMW will enhance its production capabilities.

BMW already has a partnership with Brilliance China, which it is committed to until 2028. As recently as March, sales director Ian Robertson said the group had no plans to find a second partner, according to China’s International Finance News. However, it has since been disclosed that BMW signed a confidentiality agreement with GWM for the Mini in February and an earlier one covering the production of electric cars (EV) last April.

BMW Brilliance’s existing domestic EV, the Zinoro, has not sold well since it was unveiled in 2014, although the JV has set a goal of converting BMW’s core portfolio of vehicles into electric models over the coming three years.

Analysts say the prospective GWM tie-up shouldn’t undercut the relationship with Brilliance and instead compare BMW’s actions to those of Ford, which also diversified its JVs in China, signing a new EV deal with Anhui Zoyte this summer (see WiC379).

The idea of an electric Mini still risks stalling, however. In August the Financial Times reported that Volkswagen had been denied permission by the authorities to sell an EV version of its Seat brand through its JV with JAC. Beijing’s worry: that foreign named vehicles will have an edge over purely local electric cars thanks to their brand recognition (mirroring the situation in the conventional car market where international brands make up 60% of sales).

GWM will hope to overcome similar hurdles. It has been late to the EV race, but has signed a number of agreements to catch up recently, including a stake in an Australian lithium mine and an investment in Hebei Yujie, another EV manufacturer. It has to: the Chinese government will begin penalising companies that do not hit a 10% EV production target by 2019. The threshold was originally going to be set for 2018, until Beijing conceded to pressure from German leader Angela Merkel to push it back a year.

China has very clear ambitions to lead the world in electric car sales and wants to increase the penetration rate from 1.4% to 5.5% of ownership by 2020 when it is targeting five million electric vehicles on the roads.

To reach that total, the government says it may reduce some of the entry barriers forcing global auto manufacturers into joint-venture partnerships. An announcement is expected during US President Trump’s visit to China early next month. One of the chief beneficiaries could be Tesla, which has always been reluctant to transfer proprietary technology to a joint venture partner. In fact, there is speculation that Beijing will allow foreign firms to set up their own EV operations in free trade zones, although it is not clear whether cars made there would still incur import tariffs.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.