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BMW on a delicate course in China

There were easier times for CEOs of large German corporations to travel to China.

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BMW on a delicate course in China

There were easier times for CEOs of large German corporations to travel to China. Political tensions with the communist regime are increasing, head of state Xi Jinping has developed into an authoritarian ruler - and companies such as Volkswagen, BASF and Siemens are also existentially dependent on their subsidiaries in the country. Now a dozen CEOs are on their way to Beijing with Chancellor Olaf Scholz (SPD), on the first trip of this kind in almost three years.

The example of BMW boss Oliver Zipse alone shows how difficult the balance between business and politics has become in dealing with the communist regime. Until shortly before the start of the trip, it was not officially clear whether Zipse would be on the chancellor plane. He was originally scheduled to explain the company's quarterly results in a conference call on Thursday. Surprisingly, he didn't.

Instead, his spokesman read a general political statement at the beginning of the conference, and CFO Nicolas Peter answered further questions. He called cooperation with China "absolutely essential to implement important political projects". For the Green Deal and the energy transition, China is not a risk, but an opportunity, said Peter.

"We have a great interest in using this opportunity by talking to each other and implementing appropriate projects." Only at the last minute did BMW announce that CEO Oliver Zipse was also traveling to China with the chancellor plane.

In fact, BMW has an enormous economic interest in working with China. This is shown not least by the company's current figures. As the first of the three German car giants, the group has fully integrated its Chinese subsidiary BMW Brilliance Automotive (BBA) into the balance sheet.

As a result, sales have increased by more than a third, and the number of employees and profits have increased accordingly. Thanks to Brilliance, liquid funds (cash flow) grew by five billion euros to almost ten billion euros. At other groups like Volkswagen, the Chinese joint ventures are managed separately from their own balance sheet, only the profit is included in the results once a year.

The background to the change at BMW is the increase in Bayern's stake in BBA to 75 percent. So far, Beijing has only allowed a few Western companies to take such majority stakes. VW and Mercedes-Benz only hold 50 percent of the shares in most of their joint ventures, with the rest owned by a Chinese company.

Unlike politicians, managers in the auto industry do not even begin to distance themselves from China. On the contrary: BMW plans to manufacture the electric version of the Mini in China in a joint factory with the Chinese group Great Wall. These models of the subsidiary brand are then to be exported from there to other regions of the world. "In view of the excellent quality of the product and the framework conditions, we think this is the right step," said Peter.

It is already similar with the electric SUV iX3, which is produced in China for other regions of the world. The chief financial officer emphasized that BMW's business is spread almost evenly across the three auto regions of the USA, Europe and China. The Spartanburg, South Carolina factory is the company's largest facility in the world.

Like the entire auto industry, BMW will be heavily dependent on China and the US in the coming year if Europe slides into recession as expected. Peter is hoping that new models like the small X1 SUV will offset this downturn for his company.

In the current year, he expects sales figures to be slightly below the previous year and a profit margin “at the upper end” of his own forecast of seven to nine percent. The ranking compared to the eternal competitor Mercedes-Benz should therefore remain the same: BMW sells more cars, Mercedes earns more money with them.

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