Beijing Auto Buys Small Local Carmaker to Expand in East China

Beijing Automotive Group Co., a partner of Daimler AG and Hyundai Motor Co., agreed to buy a smaller Chinese automaker as part of a 15 billion yuan ($2.5 billion) deal to produce vehicles in eastern China.

Beijing Auto will take over Zhenjiang Auto, based in the namesake city in eastern Jiangsu province, and eventually produce 300,000 vehicles a year, according to a statement from the Beijing-based company. It said 15 billion yuan is the total investment expected for the Jiangsu manufacturing base and didn’t disclose how much it paid to buy Zhenjiang Auto itself.

The agreement follows a stake purchase by Dongfeng Motor Corp. in a smaller rival in southern China in May, and adds to signs that consolidation in the world’s largest vehicle market is picking up pace. Home to more than 110 auto brands, the central government has said it will encourage mergers and reorganizations to create three to five domestic carmakers that can compete with global companies like General Motors Co.

Beijing Auto will manufacture SUVs and multipurpose vehicles in the first phase of expansion, and subsequently make mid- to high-end sedans, new-energy vehicles and engines, it said. The company said it expects annual sales revenue from the Zhenjiang operation to reach 50 billion yuan when it reaches full capacity.

In June, Beijing Auto set up a unit, BAIC International Development Co., to make acquisitions overseas. The carmaker has said it plans to have 2.5 billion yuan of profit from outside of China and sell 400,000 units abroad by 2020.

— With assistance by Alexandra Ho

Before it's here, it's on the Bloomberg Terminal.