DEUTZ has entered a joint venture agreement with SANY that will see the Germany-based company take over production of the China construction equipment manufacturer’s current engine range.

DEUTZ says it will be investing a mid-double digit million euro amount in the new joint venture and will hold a majority share of 51%. The closing of the transaction is expected by the end of the year. This agreement follows a memorandum of understanding the two companies signed in December last year (pictured).

The JV is aimed at supplying SANY with around 75,000 new engines in 2022, all of which will comply with the China IV emissions standard for off-road applications and China 6 for on-road applications, DEUTZ said.

“In addition to the successful conclusion of the joint venture deal with SANY, other elements of the international growth strategy are also going to plan in China,” DEUTZ said.

These include the strategic alliance with BEINEI to carry out production locally, with the DEUTZ management team overseeing the manufacture of about 20,000 engines for the Asia market in 2022 at a new factory in Tianjin, China. The ramp-up is set for 2020, when around 2,000 to 3,000 engines are to be produced, DEUTZ said.

“Further progress has also been achieved in the partnership between DEUTZ and FAR EAST HORIZON to expand the local service business,” DEUTZ said. “With more than 80 branches, FAR EAST HORIZON is the largest player in China’s construction equipment rental business and the ideal partner to meet the growing demand for innovative engines. DEUTZ customers will soon be able to benefit from digital services such as a shared online shop.”

DEUTZ CEO, Dr Frank Hiller, said: “The joint venture agreement marks an important milestone in the implementation of our new China strategy. We are now ideally positioned to take advantage of the rapid growth in the world’s largest individual market for engines.

“The alliances with our local partners will enable us to significantly increase our local presence for engines and we now have access to an attractive production network that will enable us to efficiently meet customer demand in the region. We can also tap into an extensive service network that we will systematically enhance with digital solutions. In an initial stage, we aim to achieve revenue of around €500 million ($550 million) by 2022.”

DEUTZ said the Chinese engines market has grown steadily in recent years and the uptrend is set to continue for some years to come. “Growth of up to 5% is forecast in China’s construction equipment application segment in 2019, while in material handling it is set to be up to 10%.”