China has announced it will end ownership caps on foreign automakers in 2022. As part of the changes, restrictions on new-energy vehicle ventures will also be removed this year. This major shift in policy will open new doors for global automakers in the world’s largest car market.
Companies building battery-electric or plug-in hybrid vehicles will have ownership restrictions removed this year. The biggest benefactor of this change will likely be electric carmaker Tesla, who has avoided the Chinese market primarily because of the former rule that they could only own 50 percent of their Chinese operation, requiring a joint-venture with a local automaker.
Commercial vehicle makers will see their restrictions removed in 2020, while traditional passenger carmakers will see ownership restrictions removed entirely in 2022.
Implemented in 1994, the local ownership rule was put in place by Beijing to prop up its domestic automakers. Many traditional automakers such as General Motors and Honda have found great value in their joint-venture partners in China and have signaled the rule change may not alter their strategy in the country much.
Some automakers have become dependent on their Chinese partners for added production capacity and engineering assets.
The primary benefit of lifting the ownership restrictions will come in the form of foreign automakers having a larger share of their profits from the Chinese market. Each traditional automaker will have to decide if a larger stake will offset the benefits currently provided to them by their joint-venture.
Likewise, today’s announcement in China also makes it far more probable that Tesla will end up in the Chinese market.