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BUSINESS

With eye on China, Germany toughens rules for foreign takeovers

Germany toughened rules Wednesday for non-EU share purchases or acquisitions of companies that are part of its critical infrastructure, amid growing disquiet about takeovers by Chinese firms.

With eye on China, Germany toughens rules for foreign takeovers
Kuka, which was taken over by Chinese appliance giant Midea in mid-2016, helps build a Ford-Werk in Cologne in April 2018. Photo: DPA

The new rules allow the government greater review powers in the defence, high-tech and infrastructure sectors, including utilities and telecoms providers, for media companies.

Chancellor Angela Merkel's cabinet decided to lower the threshold where  reviews apply to foreign purchase offers of 10 percent of such strategic  companies, down from 25 percent now.

SEE ALSO: Germany to tighten rules on foreign buyouts: report

Germany and other EU states have voiced growing concern as Chinese companies have bought up, or purchased controlling stakes in, high-tech firms, airports and harbours.

The update strengthened government powers to review and possibly block foreign purchases and aim to “strengthen our national security,” said Economy Minister Peter Altmaier. 

He assured foreign investors that “companies like to invest in Germany, and we would like to keep it that way”.

“But we have to be able to take a closer look when it comes to sensitive  infrastructure, who buys it and what the consequences are,” he said in a statement.

“Enterprises that supply us with electricity, gas, drinking water or telecommunications are of paramount importance to our coexistence. This is also true for the media sector.”



Losing knowhow

Alarm has grown in Germany about losing valuable knowhow since Chinese appliance giant Midea in mid-2016 took over German industrial robotics supplier Kuka.

In mid-2017 Germany tightened scrutiny of non-EU takeovers of strategic companies, doubling to four months the time for reviews, and broadening the range of sectors.

China issued a word of caution about the new rules, though it said they did not target a specific country.

“As protectionism and unilateralism intensifies, different parties should pay more attention to avoid sending the wrong signals to the outside world when launching any kind of policies,” said Chinese foreign ministry spokeswoman Hua Chunying at a press briefing in Beijing.

“We hope Germany will create fair and open market access … for  international enterprises, including Chinese enterprises, investing in Germany,” Hua said.

As major players in the global economy, both Germany and China “have shared responsibility to maintain free trade and multilateralism,” she added.



'National security'



In February, Germany raised no objections when Chinese billionaire Li Shufu bought a near 10-percent stake in the Mercedes-Benz parent company Daimler.

However in July, the state took a minority stake in electricity transmission firm 50Hertz, citing national security reasons, to thwart Chinese investors from buying into it.

Germany has been discussing similar protective steps at the EU level with France and Italy.

“The aim is to be able to intervene nationally, in individual cases, against state-controlled or state-financed strategic direct investments,” said the economy ministry.

This could apply where the home country of the purchasing company financially supports a takeover bid at above-market prices or through political incentives.

German business groups criticised Berlin's move Wednesday as overly protectionist and ultimately harmful.

The Chamber of Commerce and Industry called the change “problematic”, warning that it sends a “negative signal to our foreign partners”.

And the Mechanical Engineering Industry Association charged that it “is politically motivated and creates additional uncertainty among foreign investors”.

The economy ministry insisted that “this is not about more prohibitions but about strengthening the capacity to find out whether legitimate security interests of Germany are affected”.

Germany had reviewed 80 to 100 purchase offers annually in recent years “without discrimination and regardless of origin of the buyer” and had so far never blocked an offer, he said.

This proved that “Germany remains one of the world's most open investment locations”.

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BUSINESS

Is Germany’s Volkswagen becoming ‘the new Tesla’ as it ramps up e-vehicle production?

When Volkswagen chief executive Herbert Diess joined Twitter in January, he used his first tweet to warn pioneering electric car maker Elon Musk that he was coming after him.

Is Germany's Volkswagen becoming 'the new Tesla' as it ramps up e-vehicle production?
ID.3 cars in the Zwickau, Saxony production plant in March. Photo: DPA

The bold proclamation raised some eyebrows, coming from a carmaker better known for its 2015 “dieselgate” emissions cheating scandal than its green credentials.

But all that has changed since the German group announced an offensive to dominate the electric car market globally by 2025, vowing to set up six battery factories in Europe by the end of the decade.

“Volkswagen is the new Tesla,” declared the Financial Times, referring to the now dominant Californian e-car group founded by billionaire maverick entrepreneur Musk in 2003.

“Our transformation will be fast, unprecedented and on a scale not seen in the automobile industry in a century,” Diess said at VW’s inaugural “Power Day” last Monday, where he fired off a flurry of announcements.

READ ALSO: Volkswagen to spend 60 billion to transition to electric cars

Industry watchers say it’s a credible bet. Bloomberg Intelligence auto analyst Tatsuo Yoshida said Volkswagen “has (the) potential to overtake Tesla’s number one position… in a few years”.

Karl Brauer, an analyst with CarExpert.com, said VW’s “combination of financial resources and manufacturing capacity make it a prime challenger for Tesla’s dominance” — even if catching up with its US rival is “not going to be easy”.

‘Saving face’

Diess, who has headed the 12-brand VW group since 2018, has never hidden his admiration for Musk, whose brash and unconventional ways have a habit of disrupting markets.

The two men have a friendly relationship and regularly exchange emails, according to an insider.

If the aim of Diess’s carefully choreographed “Power Day” was to capture some of the enthusiasm of a Battery Day Tesla held late last year, particularly in the United States, it appears to have worked.
Diess’s announcements saw US investors flock into Volkswagen shares, including many small traders using online platforms.

In just a week, the Wolfsburg-based car giant gained 15 percent on Frankfurt’s blue-chip stock exchange, giving the group a market capitalisation of more than 130 billion.

The rise puts Diess’s 200-billion-euro target within reach but he has a way to go before matching Tesla’s $619 billion valuation.

VW’s “forced transition” towards more environmentally friendly cars has now been “recognised by the market”, said Eric Kirstetter, an auto sector expert at the Roland Berger consulting firm.

VW ironically owes its change of course to the dieselgate scandal, which forced the group into “a face-saving dive into an all-in electro-mobility strategy”, said Germany-based industry analyst Matthias Schmidt.

The Volkswagen E-Golf in production in Saxony in March 2018. Photo: DPA

Industry watchers note especially its decision to focus on developing a single platform for all its brands which could well be the game changer for the German giant.

The platform was used for the first time on the ID.3 model which launched late last year. UBS analyst Patrick Hummel called it “the most significant bet on electric vehicles made by any legacy carmaker to date” as VW’s competitors are using mostly mixed platforms and a combination of technologies.

READ ALSO: Volkswagen to slash up to 5,000 jobs to fund electric vehicle drive

Not Apple but Samsung

VW’s move is aimed at achieving economies of scale for its 12 brands.

“Tesla is learning what is takes to move into high volume, whereas companies like Volkswagen already have volumes and it’s just a matter of switching volumes from one platform to another which they have done routinely in the past,” said Subodh Mhaisalkar, executive director of the Energy Research Institute at Singapore’s Nanyang Technological University.

But VW’s size also comes with its own disadvantages — consensus has to be found for each major decision not only with the powerful head of the workers’ committee but also with managements of the group’s various brands.

Beyond the core electric technology, Volkswagen is also playing catch up with Tesla on the just as important software.

Ben Kallo, an analyst at US investment bank Baird, believes Tesla will remain the market leader on electric cars because of its advances in battery cell production and autonomous driving.

“VW might not be the Apple but the Samsung of the electric vehicles world,”UBS said in a report.

On Twitter, Diess is still 49 million followers short of Musk.

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