Beijing Automotive looks to be the latest Chinese OEM to enter the European market by way of an acquisition .
IHS Automotive perspective | |
Significance | Chinese-owned carmaker Beijing Automotive (BAIC) is looking to make a acquisition in the form of a "mid-sized" European OEM in order to gain a foothold in the region in a further sign of an increase in European investments by Chinese automotive companies. |
Implications | Beijing is looking to follow its great rival Shanghai Automotive (SAIC) by acquiring a European brand to penetrate the region, with SAIC's recently announcing its plans to expand and leverage its ownership of MG, while Geely's investment in Volvo has also been a success. |
Outlook | As things stand, it is not clear which European brands BAIC is targeting; there are few clear acquisition targets among the kind of mid-sized brands that the company has stated its interest in. However, the examples of Geely, Great Wall and SAIC shows that Chinese OEMs are serious about establishing a base in Europe and BAIC should not be discounted. |
The Beijing Automotive Group (BAIC) is looking at acquiring a European OEM in order to follow the example of its traditional rivals Shanghai Automotive (SAIC) and Geely in establishing a market and manufacturing presence in the region. According to a Bloomberg report, BAIC has engaged the services of investment banks to look into potential acquisition targets, with these unnamed financial institutions reportedly finding three medium-sized OEMs with a "good brand image" in Europe. This was confirmed by Dong Haiyang, president of the company's newly established BAIC International Development Co., who said, "We want to acquire such mid-sized brands in Europe while the economy is sluggish so we can use their facilities as a production base to expand there." BAIC International Development Co. has been established as a unit to oversee the company's overseas acquisitions and investment as well as boosting international vehicle and parts sales. Commenting on company's new division Beijing Auto Chairman Xu Heyi said, "We will do everything in our power to explore overseas markets," adding, "Establishment of this unit puts us at a new historical threshold."
BAIC currently has major joint venture (JV) arrangements in its domestic market with Daimler to make Mercedes-Benz models and with Hyundai. In line with this strategy, it wants to expand into Europe by acquiring an existing brand and production facilities rather than attempting to break into the European market with its own brand, which would be expensive in terms of building brand awareness and a distribution network. BAIC has set an ambitious target of generating CNY2.5 billion (USD408 million) of profits from overseas by the end of the decade. It also said that its target is to be manufacturing "world class" passenger cars by 2025 and has hired former Ferrari designer to formulate a design strategy to help achieve this goal.
Outlook and implications
With competition in the Chinese market becoming increasingly fierce amid fears that economic overheating could see a sudden contraction, Chinese OEMs are looking to establish manufacturing and sales presence in the European market as a sign of their growing maturity. BAIC's big rival SAIC has recently announced plans to launch its new MG3 in the European market as it looks to step up its investment in the MG brand (see United Kingdom: 14 June 2013: MG completes expansion of UK design facility, reveals MG3 for local sale), while Great Wall has taken a different track by opening a factory in Bulgaria in 2012 to make vehicles under its own brand for Europe. Meanwhile, Geely's investment in Volvo continues to proceed on a successful basis despite a slump in operating profits in 2012 due to the contraction in Europe.
However, it is unclear which European-based brands that BAIC may be targeting as potential candidates for acquisitions. The company acquired the rights to manufacture a version of the previous generation Saab 9-5 in 2009 under its own brand as it looked to step up its own non-JV passenger car manufacturing activities. The status of the Saab brand and the company's former Trollhättan factory is still somewhat open to question, and it may be a possible target for BAIC. Many of the company's assets were acquired in June 2012 by the Chinese-Japanese consortium National Electric Vehicle Sweden (NEVS), including the Saab Automobile AB company and its subsidiaries Saab Automobile Powertrain AB and Saab Automobile Tools AB. The plan is to manufacture an electric version of the Saab 9-3, which will be sold in Europe, the US and China. Vehicles sold in China will be made at a facility provided by Qingdao Qingbo Investment Co, Ltd, for a 22% stake in the company. However, given the slow start to EV sales in major global markets, this venture appears to have an uphill fight on its hands and NEVS may be open to further investment with a view to manufacturing Saab-branded conventional passenger cars, while there is also likely to be considerable spare capacity available at Trollhättan. However, on the debit side, while NEVs can use the Saab brand it cannot use the company's Griffin brand, which Scania controls, while it also does not own any of the architecture that GM provided for the stillborn second-generation Saab 9-5 which only saw few thousand examples produced before the company collapsed when it was owned by Spyker. Other than Saab it is hard to see where BAIC would find a European medium-sized OEM with a "good brand image". BAIC already has a relationship with Daimler and while the company's Smart unit has consistently lost money, Daimler appears committed to rolling out a new generation of models from next year, while Fiat has consistently rebuffed interest in the Alfa Romeo brand from the Volkswagen (VW) Group.