BEIJING -- BMW will begin Chinese production of electric cars from its Mini brand in 2021 with local partner Great Wall Motor as the automakers share the investment burden amid shifts in the industry landscape, but their export plans could be derailed if U.S.-China trade talks sour.
A 50-50 joint venture dubbed Spotlight Automotive will be established in the Jiangsu Province city of Zhangjiagang in central China with a capitalization of 1.7 billion yuan ($253 million). A 5.1 billion yuan factory with a capacity of about 160,000 vehicles per year will be built.
The plans were revealed by Great Wall General Manager Wang Fengying in a written interview with Nikkei. The automakers announced their partnership last year but did not give any details at the time.
Even as the Chinese auto market contracted for the first time in more than two decades last year, overlapping interests are pushing the two carmakers to move forward. A local partner eases BMW's efforts to comply with regulations that promote alternatives to gasoline-powered vehicles in China, while Great Wall sees an opportunity to expand abroad.
The German automaker has not produced the Mini in China before. The brand is currently manufactured in Europe and exported to the country. The partners will make electric Minis at the new factory and also jointly develop a shared platform and launch a new electric brand.
Cars from the plant may be exported, but Wang did not mention to which markets.
"The joint venture is a platform for mutual development," Great Wall Chairman Wei Jianjun told reporters Monday at the company's annual earnings briefing in Hong Kong. He stressed that the new entity's main mission is cost reduction by "bringing resources together."
Great Wall is a top 10 car seller in China's competitive market. It differs from its domestic rivals in its growth strategy, however.
Most Chinese automakers expanded by working with top overseas peers, such as Volkswagen or General Motors, to sell foreign brands. Great Wall, on the other hand, grew by selling cars under its own brand without a foreign partner.
The automaker was founded in 1984 out of Baoding, a city outside Beijing from which the People's Liberation Army guards the capital, and is known for its martial corporate culture. After becoming China's leading pickup truck seller, Great Wall set off China's sports utility vehicle boom by grasping the shift in customers' priorities toward style.
Sales have stagnated since peaking at 1.07 million cars in 2016, however, with 1.05 million sold in 2018. The Hong Kong-listed automaker's total sales fell by 2% to 99.2 billion yuan in 2018. The company secured 4% net profit growth to 5.2 billion yuan mainly on cost cutting, including halving research and development expenses.
Asked whether demand will rebound in 2019, Wei said "it is not likely to have double-digit growth like we had in the past" because the Chinese market is "now in the process of transformation from pursuing quantity to quality."
Realizing that there was a limit to independent growth in such an environment, Great Wall decided to change course and partner with an influential overseas brand to adjust to this new norm.
BMW, meanwhile, has been in China since 2003, when it partnered with Brilliance China Automotive Holdings to make and sell vehicles. Its Chinese sales grew 8% in 2018 to 640,000 compared with 1% growth worldwide to 2.49 million.
As global sales slump, China is one of the few growth markets for the company, and BMW still sees much room to grow there. It sought out another domestic partner because the government does not allow foreign automakers to produce cars in the country independently.
BMW also has another reason. Starting this year, the government is requiring all automakers to produce a certain number of new-energy vehicles, based on their Chinese sales. Technology to produce affordable electric vehicles is necessary to sell these cars in quantity, making partnerships with local automakers known for low costs essential.
There are concerning elements in their tie-up, however. Great Wall's brief history and relatively shallow expertise in management and technology are typical of regional Chinese companies, while BMW is a historic world automaker with decades of experience. It is unclear whether such disparate partners can smoothly govern a joint venture.
Great Wall's plan to use BMW to expand exports and its global presence may also be affected by the trade war. Beijing raised duties on U.S.-made autos to 40% last year as retaliation for Washington's additional tariffs on China. The increase delivered a direct hit to BMW, which produces SUVs in the U.S. for export to China, by taking a 270 million euro ($305 million) bite out of its profit last year.
Should current trade talks between the U.S. and China break down, Washington is expected to raise tariffs again on cars produced in China. The uncertainty is making it difficult for BMW to make a decision about exports from China, CEO Harald Kruger told Reuters earlier this month.
Nikkei Asian Review chief business news correspondent Kenji Kawase in Hong Kong contributed to this story.