BMW said it will extend its joint venture with its Chinese partner until 2028 as it seeks to challenge Volkswagen Group’s Audi in the world’s biggest auto market.
BMW will renew its partnership with Brilliance China Automotive Holdings for another 10 years, according to Karsten Engel, head of BMW’s China business. The partners' current 15-year joint-venture agreement is set to expire in 2018.
The extension would pave the way for BMW to discuss longer-term expansion plans with Brilliance in China. BMW, the world’s largest maker of luxury cars, has seen sales in China expand about 25 percent during the first five months, on pace to top annual deliveries of 400,000 vehicles for the first time.
BMW and Brilliance signed a memorandum of understanding in Berlin in March to deepen their cooperation through adding joint projects, BMW said in March. The joint venture is also expanding its vehicle production capacity to 400,000 units in its two production facilities in Shenyang.
BMW has been working with Brilliance since 2003. The joint venture builds the BMW 3-series and 5-series vehicles and German automaker is also helping its Chinese partner develop engines and a next-generation minibus.
Analysts at ISI Group said in a note: "Having a strong partner and long-term visibility regarding the relationship is very important in order to safeguard BMW's position in China."
BMW's effort comes as rival Daimler restructured its Chinese joint venture with BAIC Motor.
European and U.S. manufacturers are eager to increase their footprint in China, but have been limited to owning 50 percent or less of joint venture companies run together with Chinese state-owned enterprises.
In addition to the ownership threshold, the current policy calls for foreign automakers to set up a jointly run technical center in China and to transfer certain technologies to their local partners.
BMW's joint venture in China sold 184,823 BMW and Mini vehicles in the first five months, a rise of nearly 25 percent year-on-year as the German automaker narrowed its sales gap with Audi, which is China's top-selling premium brand.
Audi reported sales of 217,910 units for the year to date, up nearly 19 percent.
Mercedes-Benz, China's No. 3 luxury brand, reported 112,507 deliveries in the market, up nearly 42 percent year-on-year. Mercedes expects to get an additional boost when it launches production of the redesigned C Class sedan in China later this summer.
Bloomberg and Reuters contributed to this report