BMW to boost China investment, opens new plant in Shenyang

 BMW AG (BMW.XE) and its joint-venture partner Brilliance China Automotive Holdings Ltd. (1114.HK) will together invest an additional EUR500 million to increase production capacity in China, the German car maker said Thursday, suggesting that luxury-car makers remain upbeat about growth potential in China amid economic concerns in Europe.

"China belongs to the three most important markets worldwide for BMW Group and offers great growth potential, particularly in the premium segment," Chief Executive Norbert Reithofer told reporters on the sidelines of 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.

China has been the growth engine for many global auto makers in recent years, but softening car sales in the first quarter indicate that growth is set to moderate.

Reithofer said BMW aims to maintain balanced growth worldwide and won't become too dependent on Chinese sales, adding that stricter emission regulations could threaten its planned sales growth in China.

BMW is the world's bestselling luxury-car maker ahead of Volkswagen AG's (VOW.XE) Audi brand and Daimler AG's (DAI.XE) Mercedes-Benz marque. In April, its sales in China rose 31% from a year earlier to 27,197 cars, making it the company's largest market worldwide last month.

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.

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.