-Partners to invest EUR500 million in new car-making capacity
-Plans to increase engine production
-BMW sticks to forecast of 25% to 30% in China car sales in 2012
By Nico Schmidt
Of DOW JONES NEWSWIRES
(Adds sales forecast in fourth paragraph, analyst comment in fifth paragraph, background throughout)
SHENYANG, China -(Dow Jones)- BMW AG (BMW.XE) and its joint-venture partner Brilliance China Automotive Holdings Ltd. (1114.HK) Thursday said they will together invest an additional EUR500 million to increase production capacity in China amid undimmed confidence about the near-term prospects for the country's luxury car sales despite the stormier economic outlook.
"China belongs to the three most important markets world-wide for BMW Group and offers great growth potential, particularly in the premium segment," Chief Executive Norbert Reithofer said during the opening ceremony for BMW's second production plant in China.
Chief Financial Officer Friedrich Eichiner said BMW and Brilliance will also expand the production of engines in China, but didn't elaborate. The joint venture has the capacity to produce 200,000 engines annually and has already invested EUR1 billion in its two plants in northeastern China's Shenyang city.
Mr. Eichiner reiterated BMW's forecast that its sales in China should rise by 25% to 30% in 2012 suggesting growth will slow slightly after strong demand early in the year. China became BMW's most important market in April when sales rose 31% to 27,197 cars from the same month a year ago, with sales in the first four months up 35% at 107,211 cars.
Analysts at brokerage house Cheuvreux said Mr. Eichiner's forecast was "positive" and ahead of their estimate of 18% growth in China this year.
BMW's optimism comes amid growing worries about a more severe-than-expected slowdown in the Chinese economy. HSBC Holdings PLC's purchasing managers index for China fell to a preliminary reading of 48.7 in May from 49.3 in April, indicating that manufacturing activity declined for the seventh straight month. The euro zone's economic contraction also deepened in May with business activity falling at its steepest rate in nearly three years, an influential survey of purchasing managers showed Thursday.
Still, Germany's luxury auto makers have all notched up sales records so far this year amid strong demand in the U.S. and emerging markets and parts of Europe. BMW's global sales rose 6.1% in April to a record 145,505 vehicles, with cumulative sales for the year up 10%. BMW has warned that rising capital spending partly to keep up with demand could weigh on its profitability this year.
Mr. Reithofer said BMW, the world's biggest seller of luxury cars ahead of Volkwagen AG's (VOW.XE) Audi unit and Daimler AG's (DAI.XE) Mercedes-Benz unit, aims to maintain balanced growth world-wide and won't become too dependent on Chinese sales particularly as stricter emission regulations could put a brake on demand for luxury cars in the future.
BMW is investigating making cars in Brazil, whose car market is roughly the size of Germany's, with talks underway with the government which could determine the scale of the auto maker's investment.
Boosting production outside of Europe is crucial for BMW to reduce exposure to currency fluctuations. BMW produces the majority of its cars and engines in Europe, but exports a big chunk of production to the U.S. and China. This leads to a relatively large exposure to swings between the euro and the U.S. dollar or the yuan.
BMW started to assemble cars in China in Shenyang's Dadong district together with Brilliance in 2003. Its new facility in Shenyang's Tiexi district and its Dadong plant each have an annual production capacity of 100,000 cars, and production capacity at its Tiexi plant is set to rise to 200,000 cars annually in 2014.
Mr. Reithofer said BMW could produce up to 400,000 cars in China annually in the medium term if it operates both plants around the clock seven days a week. He said BMW might be able to sell up to 500,000 cars in China per year at some point, but declined to provide a time frame.
BMW produces the compact X1 sports utility vehicle its Tiexi plant and a long-wheelbase version of its 3-series model that is tailored for the Chinese market.
-By Nico Schmidt, Dow Jones Newswires; +49 162 9981196; email@example.com
--Christoph Rauwald contributed to this article.
(END) Dow Jones Newswires
May 24, 2012 10:21 ET (14:21 GMT)
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