German automaker BMW plans to invest more than $417 million US in its South African operations to start production of the X3 SUV, easing pressure on its U.S. factory that specializes in SUV output, according to a Bloomberg report in EuropeAutoNews.
The X3 SUV production will replace local South African production of the 3 series sedan.
BMW has produced the 3 series at the plant for more than 20 years and will continue to do so until the end of its lifecycle in the next few years, then ramp up to X3 production, Moneyweb reports. An estimated 70,000 3-series models are projected this year.
The X3 will be built at the Rosslyn plant north of Pretoria starting in 2016. It will be sold in South Africa, Africa and outside the continent
The shift towards the X3 model is driven by world demand, said Tim Abbott, managing director of BMW Group South Africa, Moneyweb reports. The X range accounts for more than a quarter — 28 percent — of global BMW sales. More than one in four BMWs sold is an X model. This could to increase to one in three.
The U.S. BMW production plant in Spartanburg currently produces the X3 exclusively, but is expected to outgrow its capacity in 2016, EuropeAutoNews reported.
The average price paid in the U.S. for a BMW 2015 X3 is $44,071, according to Edmunds, an American online resource for automotive information.
This won’t be the first time the X3 SUV has been built outside the U.S. It was previously built by Magna Steyr in Austria, according to Bloomberg.
Sales of the X range are expected to grow in South Africa and Africa, Abbott said.
“We currently don’t supply the 3 Series to the African continent, but going forward we will start supplying X3 both into South Africa and into Africa as well,” he said, according to Moneyweb.
BMW exports about half of 3-series volumes produced in South Africa to the U.S., but since the U.S. has its own X3 production plant, the export mix is expected to change.
There may be opportunities to export the X3 to other countries in Africa including Nigeria, Tanzania and Kenya, and export markets in Europe, Abbott said. BMW will probably continue to supply vehicles to current export markets like Australia, New Zealand, Japan and South Korea, depending on world demand.
Car makers are expanding in South Africa despite the economic slowdown and auto industry strikes. South Africa’s auto-incentive program attracted companies such as Volkswagen, Ford and BMW to invest in factories there.
When BMW established its Rosslyn factory in 1973, it was the company’s first foreign plant, Bloomberg reports. The factory produced its 1 millionth car in February and is expected to produce about 70,000 3-series vehicles this year.
South Africa recently announced its intention to extend the current auto incentive program beyond 2020. The sector has been under cost, labor and currency pressures.
Rosslyn is the only plant outside the U.S. permitted to build the X3 due to a stable policy environment its incentive program, Abbott said.
“We haven’t had strikes since 2013 so we have got a much more stable labor force,” he said.
