SHANGHAI -- German carmaker BMW is sticking to plans to make China an export platform for its new electric models, despite uncertainty about tariffs and the trade conflict between Washington and Beijing.
The company denied reports that the trade war between Washington and Beijing -- which has seen tariffs imposed on Chinese car imports into the U.S. -- had prompted a rethink on plans to export the iX3, an electric version of the X3 compact crossover SUV, from China.
BMW spokesman Max-Morten Borgmann told Nikkei Asian Review, "Our strategic plans to export the iX3 from China remain unchanged."
China has yet to become a major source of automotive exports even as the country has come to dominate manufacturing in many areas and has emerged as the world's largest car market.
Although most large foreign automakers have invested in factories in China, their focus has been on serving the booming domestic market rather than exports. They served export markets from other factories in part because of Chinese rules capping ownership of local operations at 50%, forcing them to split profits and share control.
BMW, however, is set to pioneer a new approach after winning Beijing's approval in January for a 3.6 billion euro ($4.02 billion) plan to lift its stake in its joint venture with local partner Brilliance Automotive Group Holdings to 75%. BMW is so far the only automaker to receive China's nod since the government last year moved to allow full foreign ownership of electric vehicle production operations and said it would phase out limits for traditional car production by 2022.
Two factories in the northeast city of Shenyang run by the BMW Brilliance joint venture, known as BBA, are to be the global production base for the iX3, a new electric version of the X3 compact crossover SUV that the company currently produces in China, the U.S. and South Africa.
With U.S. market access unclear, BMW officials have declined to spell out their current target markets for exports from China. Analysts expect BMW to focus iX3 exports on Europe, at least for now. They project the company will initially produce about 20,000 of the iX3 each year.
China's emergence as the world's largest electric vehicle market was a critical factor in the company's planning, according to BMW's Borgmann.
"For many years now, we have successfully followed the strategy of production following the market. Therefore, we decided to build the iX3 in China," he said.
"Control in BBA at both shareholding and management levels allows BMW Group to fully integrate the plants in China with its global production network," said Borgmann. "In 2020, the all-electric BMW iX3 will be our first model which is exported from China to the world market."
BMW also plans to export electric cars under its Mini marque from a new 50/50 joint venture factory to be built in Jiangsu Province with Chinese automaker Great Wall Motor. Analysts expect it will produce at least 20,000 cars a year. The company is investing around 3.7 billion euros in the new production lines of the two joint ventures.
For the BMW brand, China is the company's top market by far, accounting for more sales than Germany and the U.S. combined. BMW has long jostled with fellow German brands Mercedes-Benz and Audi for the top position in China's luxury auto market.
Chinese sales of BMW and Mini brand vehicles rose 7.7% last year to 639,953 even as overall new cars sales in China declined for the first time in 28 years. Sales for the first three months of this year were up 10.1% from a year before.
Like other luxury goods producers, BMW cut its Chinese prices in April to adjust for Beijing's reduction in value-added taxes. But it also announced it would recall 360,000 vehicles to replace potentially defective air bags made by Japan's Takata.
Bringing together production of a model like the iX3 at a single factory allows economies of scale and avoids duplication of production lines and supply chains.
"Concentrating production in one location has two major advantages: lower logistic costs and lower manufacturing costs," said Sa Boni, director of the China automotive practice at consultancy IHS Markit. "Concentrating production in one site will also help to improve manufacturing efficiency."
BMW has concentrated production of a number of its existing SUV models at its U.S. factory in South Carolina, for example.
Yet the globalized approach to auto production is under pressure from U.S. President Donald Trump. He put a special 25% tariff on Chinese auto imports and has been considering declaring auto imports as a national security threat, a move that would allow him to apply further tariffs more broadly.
American automaker Ford Motor last year abandoned plans to export a new crossover model from China to the U.S. because of the special tariff.
Volvo Cars, the Swedish carmaker controlled by China's Zhejiang Geely Holding Group, has said it is rethinking its plans to export its new Polestar electric model from China as well after shifting U.S.-bound production of its XC60 SUV from China to Sweden. Guangzhou Automobile Group has suspended its U.S. export plans too.
"I expect the trade war to add to the incentive for the international [carmakers] to not export from China," said Robin Zhu, senior Asian automotive analyst at Sanford C. Bernstein.
But fellow German automakers Daimler, the parent of Mercedes, and Volkswagen look to be following in BMW's footprints in boosting their ownership stakes in China.
Daimler formed a 50/50 joint venture in March with Zhejiang Geely, now the German company's biggest shareholder, to produce new electric cars under its Smart marque for sale globally. It is also reportedly considering raising its stake in its existing joint venture with China's BAIC Motor above 50%. Volkswagen is said to be looking at taking a stake in JAC Motors, with which it has a joint venture to make electric vehicles.