The Bayerische Motoren Werke AG (BMW) X2 crossover vehicle is displayed during the 2018 North American International Auto Show (NAIAS) in Detroit, Michigan, U.S. (Photographer: Andrew Harrer/Bloomberg)

BMW, Tesla to Gain Most From Striking Out on Their Own in China

(Bloomberg) -- China’s decision to stop putting foreign carmakers in bed with local partners is unlikely to prompt a major unwind anytime time soon. But it dangles the lucrative draw of future wholly-owned future factories.

Such a move would benefit new competitors like Tesla Inc. and late China-arrivals like Fiat Chrysler Automobiles with no or limited joint-venture production in China. Luxury brands such as BMW and Daimler AG’s Mercedes, which still pull in a significant imports despite a 25 percent duty, could also be tempted.

“The new regulations open up the path for wholly-owned operations going forward,” Arndt Ellinghorst, a London-based analyst with Evercore ISI said in a note, adding that a local partner might still make sense. “We view the news as positive given that it will seemingly make it easier for” carmakers to do business and manufacture in the county.

Since the news, carmakers signaled stability for existing partnerships. Still, the timing of the announcement comes as BMW hasn’t yet finalized talks with Great Wall Motor Co. to make electric Minis in China. On Tuesday, the second-biggest luxury carmaker said it was too early to state details about its planned venture with “many details still to be discussed.”

The Chinese government said Tuesday that foreign carmakers will, from 2022, be allowed to own more than 50 percent of business units operating in the country. For electric carmakers, the change is due to come this year. The “50:50 rule” has been a cornerstone for China’s auto industry since 1994, designed to buy local auto makers time to gain the technology and build their brands before giving overseas companies unrestricted access.

The Asian nation was Tesla’s second-biggest market with about $2 billion in sales last year -- all imported from the U.S. Tesla was about three years away from starting production in China, Chief Executive Officer Elon Musk said in November, as the company struggled to clinch a deal to open a factory.

©2018 Bloomberg L.P.

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