By Alexandra Ho

Bayerische Motoren Werke AG , the world’s largest manufacturer of premium cars, is boosting capacity and building new models in China as it extends an agreement to jointly make vehicles with its local partner.

BMW will increase annual production capacity in China to 400,000 vehicles from its current 300,000 units, the Munich-based company said in an e-mailed statement. The automaker last month said it will extend its partnership with Brilliance China Automotive Holdings Ltd. for another 10 years, to 2028.

The company’s expansion in the world’s largest auto market comes as it targets record global deliveries and vies with Volkswagen AG’s Audi and Daimler AG’s Mercedes-Benz for the sales lead in the premium segment. BMW’s sales in mainland China, which includes the Mini brand, surged 23 percent in the first half of the year outpacing market leader Audi’s 18 percent increase in the period.

“Local production enables us to cater to this rising demand from the Chinese customers,” Friedrich Eichiner, a member of BMW’s board, said in the statement. “By extending our partnership with Brilliance Auto we have created the foundation that will allow us to further intensify our engagement in China.”

The maker of the 5-series sedan plans to double the number of models it makes in China from the current three to six, Eichiner said. The planned introductions include a new entry-level model below the 3 series sedan and a variant of its X3 sport-utility vehicle, he said.

BMW will also start producing 3- and 4-cylinder petrol engines in China in 2016, according to the statement.

Group sales in mainland China surged 23 percent to 225,035 vehicles in the first half, BMW reported this month. That compares with Audi’s 268,666 units. Audi counts Hong Kong in its tally.

BMW has also announced expansion plans for its U.S. plant and is investing in a $1 billion factory in Mexico.