BMW counters Tesla offensive in China with new EV plant

SHENYANG, China – Gray walls stretch into the distance about an hour’s drive from the center of Shenyang in northeast China. Behind the barriers is Plant Lydia, a 15 billion yuan ($ 2.24 billion) factory built by BMW Brilliance, a joint venture between BMW and Brilliance China Automotive Holdings.

The massive structure represents an accelerated push into electric vehicles by BMW Group in China as EV specialists like Tesla and Nio eat into the country’s all-important luxury car market.

In an online ceremony to open the plant on Thursday, BMW highlighted the use of artificial intelligence and data analytics at the new plant.

“Plant Lydia is capable of producing up to 100% electric vehicles, according to market demand,” said Jochen Goller, president and CEO of BMW Group Region China. “Together with our Tiexi and Dadong plants, Lydia will play an important role in further accelerating our electrification transformation in China.”

All of BMW’s Chinese plants are located in Shenyang. The group began production at Dadong in 2004 and Tiexi in 2012. It also brought a battery factory online in 2017.

Lydia will bring annual production capacity in Shenyang to 830,000 vehicles from 760,000. The plant could further increase output, with a maximum annual capacity of 400,000 vehicles, according to reference materials from the Liaoning Province government.

“We hope to increase deliveries to BMW by 30% in 2022,” said an executive at a supplier based in Dalian.

The new plant is a key driver for BMW’s EV strategy in China. The automaker plans to offer five electric models in China by the end of the year, and 13 in 2023.

Electrics made up 3% of its Chinese sales in 2021, according to data from the China Passenger Car Association and other sources. Its goal is to hit the 25% mark by 2025.

BMW is not alone. Audi, a part of the Volkswagen Group, aims to finish building its first dedicated EV plant in China at the end of 2024. Toyota Motor this winter will launch the RZ 450e, the first EV under its Lexus brand, with plans to eventually reach 50 markets worldwide including China.

Although China’s auto market has cooled overall, the luxury sector – vehicles priced at 300,000 yuan or more – continues to grow. About 3.47 million luxury vehicles were sold in China in 2021, making up 16% of passenger car sales, according to the China Association of Automobile Manufacturers (CAAM).

BMW has expanded unit sales in China every year since 2009, when comparable data became available. China is now its most important market, accounting for 34% of global sales in 2021.

Plant Lydia could potentially expand its annual production capacity to 400,000 vehicles, according to government documents. (Photo by Shin Watanabe)

BMW, Mercedes-Benz, Audi and Lexus together control over 70% of China’s luxury auto market. Sales have remained brisk throughout the coronavirus pandemic, as wealthy consumers, unable to travel, spend more on cars.

But they are facing growing competition. “High-end EVs are eating into the market share of these foreign luxury carmakers,” said Tang Jin at Mizuho Bank.

Tesla sold around 320,000 vehicles in China in 2021, while homegrown brands Nio, Li Auto and Xpeng together sold about 280,000 vehicles – both over double the figure from the year before. The trend has continued this year, with Tesla and the three Chinese players logging growth ranging from 10% to roughly doubling on the year in January-May, even as BMW saw a 16% drop.

One of their strengths is their ability to incorporate cutting-edge digital features into their vehicles. “In addition to a quiet interior, their cars have advanced connectivity functions, like voice-activated GPS and windows,” said an executive at an automotive electronics maker.

Meanwhile, luxury brands have been slow to make inroads into EVs. “When talking about EVs, many Chinese people now think of Tesla or one of the Chinese brands,” said one Dalian resident.

EVs and plug-in hybrids made up 26% of new passenger cars sold in May, according to CAAM. But “luxury automakers, excluding those that specialize in EVs, have only electrified around 1% of sales,” Tang said.

“It’s unclear how much EV sales BMW and similar players can achieve,” he said.

One major change in China’s auto market this year is that the government scrapped its foreign ownership restrictions for passenger car ventures. Previously, foreign companies could only own up to 50% of a joint venture, and could establish a maximum of two joint ventures. Beijing had already abolished these rules for new-energy vehicles in 2018 and for commercial vehicles in 2020.

In February, BMW increased its ownership of BMW Brilliance to 75% from 50% for 27.9 billion yuan. Volkswagen in 2020 expanded its stake in an EV joint venture to 75% from 50%.

“Greater ownership will allow automakers to make faster decisions regarding new products and facilities,” said Zhang Hongzhuo, chair of the Automotive Working Group at the European Union Chamber of Commerce in China.

“Many European companies are already preparing to increase their stakes, and will start seeking necessary approvals,” he said, though he added that it remained to be seen whether the Chinese government will greenlight such plans.

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