The fact that Nanjing Automotive Corporation is looking for a major cash injection from either a government loan or a partial sell-off of the business might raise doubts about the company’s ability to pull off the project to restart production of MG models in China, an analyst has said.

However, Global Insight’s London-based auto analyst Tim Urquhart said in a research note that, with the company having already invested around $US400m in the project, it is unlikely that the Chinese government will not offer further support to the venture.

As just-auto reported yesterday, Nanjing Automotive Corporation (NAC) has begun trial production of its new MG7 passenger car, which is based on the MG ZT D-segment sedan, to which the company acquired the rights following MG Rover’s bankruptcy in 2005.

Urquhart noted that Nanjing is China’s oldest carmaker, but this is the first time that it has acquired the rights to its own intellectual property for a passenger car design. Full production of the MG7 will begin next month, with the model going on full sale in China by the end of the second quarter.

Nanjing bought the remaining assets of the failed UK MG Rover two years ago for GBP53m (about $US104m). Included in this sale were the rights to the MG-ZT model and ZS and ZR, as well as the TF sports car. Nanjing also acquired Powertrain, MG Rover’s engine-making unit.

The first MG7 rolled off the production line at a ceremony on Tuesday, although the model will undergo a short period of trial production before actually being offered on the market. The company is bullish about the MG7’s prospects of succeeding in China despite the fact that Shanghai Automotive Industry Corporation’s (SAIC) similar Roewe 750 model has already gone on sale in China.

The company’s general manager, Zhang Xin, said, “The car itself did not fail; it was the management. This is a great car with a good name.”

Urquhart said Xin also confirmed that the company might look to raise 2-3bn yuan ($258-388m) to continue its expansion and support its production efforts both at home and abroad by selling a 50% stake in the company.

He cited a Reuters report that quoted Xin saying that the company had been in touch with a number of financial institutions about buying into the company. Xin reportedly said: “We have been in talks with a number of potential partners, including funds, in North America and Europe, and could sell as much as 50%.”

It has also been reported that Nanjing chairman Ang Haoliang presented a proposal to China’s legislature seeking support for a loan worth up to 3bn yuan to help fund its expansion.

Wrote Urquhart: “Thus, it appears that Nanjing is looking at a number of potential funding sources in order to secure its production plans both in China and abroad. The company has claimed in the past that it planned to begin limited production of the MG-TF sports car at the former MG Rover plant in Longbridge, in the United Kingdom. While this plan appears to still be in place, Xin has given a clear indication that Longbridge will play a major role in the company’s research and development (R&D) strategy.

“He said, ‘We never stopped R&D at Longbridge from the day we bought the factory and we are going to develop more cars and more engines at Longbridge. R&D will be at two locations – in China with NAC where we have 60 years of history and R&D as well, and Longbridge, where we will develop new and more modern technology’.”

Urquhart added that Nanjing Automotive Company was formed in 1947 and, as China’s oldest automotive manufacturer, it “still holds a lot of sway with local and national government”.

However, he noted it has been left behind somewhat by the country’s biggest passenger car manufacturers, such as SAIC and First Automotive Works (FAW), which have long-established and highly successful joint ventures with foreign manufacturers such as Volkswagen and General Motors.

Nanjing is attempting to gain ground on these companies and was the surprise winner against SAIC when the two companies bid for the assets of bankrupt MG Rover in 2005. However, as SAIC already owned the rights for the Rover 75 and 45, having done a deal with MG Rover in 2004, Nanjing was left with the rights to manufacture the similar MG variants of these vehicles, as well as the TF sports car and ZS C-segment sedan.

“It remains to be seen whether the Chinese passenger car market can support two versions of virtually the same model pitched at a relatively high price point. The proposed maximum price of Nanjing’s MG7 of 400,000 yuan would appear to be highly ambitious, and it pitches the model at the very top of the D-segment sedan market. It is likely that the battle between Nanjing and SAIC in the Chinese market will be decided by marketing and price point,” Urquhart wrote.

“However, with Nanjing having come this far with its ambitious plans, it is highly unlikely that either national or state governments will turn their backs on supporting the project,” he concluded.