|During the year 2017, China’s economy had continued to experience solid growth with GDP up 6.9% compared to the previous year. Total Chinese vehicle sales increased by 3.0% to 28.88 million units in 2017, according to the China Association of Automobile Manufacturers. Of this figure, passenger vehicles accounted for 24.72 million units, up only by 1.4% as a result of the pulling forward of small engine vehicle purchases at the end of 2016. Nevertheless, driven by launch of new products and revived consumer spending on luxury goods, growth of premium passenger vehicle sales in 2017 had again significantly exceeded that of the overall passenger vehicle market and reached approximately 17%.
Since the beginning of 2017, our BMW Brilliance joint venture (“BBA”) has been working diligently to roll out new production capacity and launch new pipeline models. The capacity expansion project at the Dadong plant was completed in May, to prepare for production of the brand new 5-series which was launched to the market in June 2017. Together with the Tiexi plant, BBA has reached total annual production capacity of over 500,000 units providing for products of different architectures and drivetrains. The new 5-series embeds cutting-edge innovations and class-leading driving dynamics, and has received raving market reviews and extremely positive customer response since launch. In addition to the 5-series, in March 2017 BBA has also introduced the brand new BMW 1-series sedan. This new addition represents the fifth locally produced BMW product for BBA, and the first that is solely catered for the Chinese market. The new launches contributed to the newly added volume during the year. Alongside these new launches, sales volume of our X1, 2-series and 3-series also increased during the period. As a result, BBA achieved sales of 386,549 BMW vehicles in the year 2017, representing an increase of 24.7% when compared to the previous year
BBA has continued with expansion of its dealer network which had reached 506 full service 4S shops nationwide as at 31st December, 2017. It continues to work closely with its sales organisation on all fronts in an effort to sustain the profitability of both BBA and its dealers. Various aspects of digitalisation, such as aggregation of channels, enabling of additional online activities and further integration of digital services are being rolled out in China. Furthermore, the brand new Shanghai BMW Brand Experience Centre opened in March also provides Chinese consumers with unprecedented brand experiences. BBA’s sales activities also continue to be supported by the BMW auto finance company which has been performing extremely well and contributing increasing profits to BBA.
Brilliance continues to be confident about the long-term growth prospects of the Chinese premium auto industry. We believe the new products to be introduced by BBA over the next few years will have strong customer appeal, and will broaden and better tailor our product portfolio to meet Chinese consumers’ preferences. The brand new X3 sport activity vehicle (“SAV”), another new BMW model and the sixth one to be localised within BBA, will come to market later this year. The new X3 will be a key product which will bolster the competitiveness of BBA’s product offerings in China. Furthermore, the company is also actively finalising its new energy vehicle strategy and product lineup for the next few years to properly position itself for participation in this rapidly growing sector in China. BBA’s model pipeline will be enriched with the addition of new battery electric variants over the next few years. In order to support growth in the new energy area, BBA opened a new high voltage battery factory in its engine plant in October 2017 which is the first battery factory operated by a premium automobile manufacturer in China. In addition to the above, the topics of further capacity expansion, cost control, dealer management, component localisation, new regulation, and further integration of BBA into the BMW network via potential exports of vehicles and components from China will all remain key focus areas for BBA’s ongoing operation.
As for our minibus business, the Group reached agreement at the end of 2017 to bring in Renault SAS (“Renault”) as a shareholder and joint venture partner in our minibus operating subsidiary. The company has been renamed Renault Brilliance Jinbei Automotive Co., Ltd. (“RBJAC”), and the cooperation with Renault marks a crucial strategic move and an important step for the company to turn around our existing minibus operation, as well as cultivate the full potential of the light commercial vehicle (“LCV”) market in China by utilising the joint expertise and knowhow of the two shareholders. During the short period since RBJAC’s formation, a new senior management team has already been put in place and tasked to formulate both an immediate and mid-range business plan for the company. Although we expect RBJAC to continue to contribute negative earnings to the Group in 2018, our aim is to craft a concrete plan for existing product revamp, immediate cost reduction, sales overhaul, and new product pipeline so as to reduce losses year-on-year and ultimately returning to profitability.
Brilliance-BEA Auto Finance Co., Ltd. (“BBAFC”), the Company’s auto finance subsidiary in China, had once again achieved profitability in 2017. In addition to supporting Huachen Group and RBJAC’s sales of their sport utility vehicles (“SUV”), sedans, minibuses and multi-purpose vehicles (“MPV”), the company has also successfully extended its business with Jaguar Land Rover (“JLR”) to finance their customers and dealers. At the end of 2017, BBAFC had a network coverage of more than 200 dealers with JLR, paving the way to strong future growth. Moreover, BBAFC has also established a new cooperation with TESLA, thus increasing the company’s footprint in the fast-growing electric vehicle market in China.
The remaining months of 2018 will continue to be very challenging for the Group. Maintaining the prominent position of BBA in the premium auto market, executing renewed strategies for the turnaround of RBJAC with Renault as our new partner, and driving for additional businesses and profits for BBAFC, will all remain the Group’s business priorities. Apart from that, the Group also continues to look for new business opportunities as well as ways to further streamline its existing operation and corporate structure to support its business growth.