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Chief steering Xinchen to next level as BMW supplier
With the company snaring an engine assembly deal, Wu Xiaoan has his sights set higher, with his Brilliance Auto as a model for top-tier work
BMW's watershed decision to outsource its engine assembly works to a mainland manufacturer may have driven up Xinchen Power's share price over 40 per cent since its listing in March, but Xinchen's chief executive says the company is aiming for much more.
Wu Xiaoan, the chief executive of both Xinchen Power and Brilliance Auto - a joint venture between Xinchen's parent company Huachen and the luxury German marque that produces BMW cars in China - said Xinchen could well repeat the success story of Brilliance Auto and emerge as a top-tier engine supplier to BMW. Wu was speaking in an interview on the sidelines of the company's inauguration of a plant in Mianyang, Sichuan, which will produce the first batch of 25,000 BMW N20 engines next June.
While producing one of the world's top 10 engines marks a high point for Xinchen, the financial contribution to the company from it is limited for now. Not only is the initial capacity of 50,000 engines small compared with an annual capacity of 300,000 for Xinchen's domestic engine platform XE, the gross profit margin of the N20 engines would be lower than for the domestic ones as Xinchen is only assembling partially finished parts.
But Guenter Wollny, senior vice-president of project consulting at BMW, said the two companies could talk about "more business" if Xinchen proves that it can produce advanced engines.
"We could develop Brilliance and Xinchen as a supplier of engine parts and an engine manufacturer," Wollny said. "But they have to learn first. We are beginning with semi-knock-down engine parts - engines that come partly assembled. In the next step, they will not come partly assembled anymore."
Brilliance Auto is doubling its engine capacity to 400,000 units with a new plant in Tiexi, Shenyang province, that will begin production in 2015. But that may still fall short of BMW's long-term goal to sell 600,000 cars a year in China, nearly double its sales last year. While the N20 capacity is still a fraction of Xinchen's total output, Wu said Xinchen could become another Brilliance Auto one day.
"When BMW first came in 1999, it made up a fraction of our sales. Then it grew bigger and bigger and today it makes up 99 per cent of our sales and 100 per cent of our profit. Our minivan business has practically disappeared. Will Xinchen's current XE engine platform be replaced by BMW in the future? That is a goal we are now working on."
About half of the 25,000 made-in-China N20 engines would be used on Huachen's domestic minivan Jinbei by the end of next year while the rest would be sold to Brilliance Auto for BMW's 3-series and 5-series models. Wu said he hopes Xinchen would be ready as a tier-one supplier for BMW when it rolls out its next generation of engines by 2017.
But John Lu, an auto analyst at Guosen Securities, said it may take a while before Xinchen becomes a top-line engine supplier to the German carmaker. "BMW spent billions of yuan to build its mainland plant but Xinchen's new facilities in Mianyang cost only some 300 million yuan (HK$376.9 million)," he said. "It may take a long time before Xinchen can produce an engine with the same quality as that of BMW."