BMW workers in Birmingham will build the hi-tech engines for the automotive group's i8 hybrid sports car after beating competition from sister factories in Germany and Austria.
BMW said the engines could have been made at its facilities in Munich or in Steyr, Austria, but it had been encouraged by the UK government's support of the domestic car industry, where BMW employs about 6,100 manufacturing staff.
The three-cylinder petrol engines for the plug-in hybrid car – which alternate between a conventional combustion engine and battery power – will be made exclusively at BMW's Hams Hall site in Birmingham, which also makes engines for the BMW-owned Mini brand.
Ian Robertson, BMW's head of sales and marketing, said a UK investment spree by carmakers, backed by support from ministers in recent years, had influenced the decision.
He said: "There are some very encouraging steps in terms of what the government and industry has been doing.
"Our activity in manufacturing also follows our sales and we see that the UK market is not only a strong volume market but also has a high proportion of premium."
The i8 project is not expected to add many jobs because the Hams Hall site, which employs nearly 800, is highly automated and produced more than 430,000 engines last year. The investment for the i8 is largely covered by a £500m capital expenditure programme announced by BMW last year. The car is expected to launch in 2014.
Speaking at the 2012 international summit at the Society for Motor Manufacturers and Traders (SMMT), Robertson added: "Our 3 series car is regularly in the top 10 for volume sales in the UK. And the premium market here is very large, about 25% (of sales)."
Robertson said the strong appetite for premium vehicles in the UK, as underlined by recent record profits at Jaguar Land Rover, required an "ongoing manufacturing presence".
"We see the UK as a very strong market going forward in terms of sales," he said, pointing out the manufacturing cost benefits of making cars in cheaper sterling and adding: "We see the government balancing the economy towards manufacturing. The conditions for manufacturing are good here."
Paul Everitt, SMMT chief executive, said: "The announcement that BMW will build its new i8 sports car engine in the UK at its Hams Hall plant is great news for the UK and demonstrates that international companies continue to see the UK as a competitive manufacturing base and key market for new products."
The SMMT has set an all-time manufacturing target for the industry and has predicted that the UK could surpass the 1.92m cars produced in 1972, with more than 2m units manufactured in 2015. It would represent a significant leap on 2001, when the industry produced1.3m units .
Nonetheless, the industry is growing apace in the wake of significant investment announcements by manufacturers with a strong UK presence, such as Honda and Nissan, as well as homegrown players such as Jaguar Land Rover. In the first four months of 2012 car manufacturing in the UK increased by 11.8% compared with the same period in 2011.
In another boost for UK industry, Bombardier Aerospace in Belfast announced its biggest ever order for aircraft thanks in large part to global investor Warren Buffett.
The Belfast division of Bombardier located at four sites across the city is to build 100 Challenger Jets worth at minimum £1.3bn.
The order comes from Buffett's company NetJets and secures the jobs of more than 5,000 workers. Bombardier is the biggest manufacturer based in Northern Ireland.
