It said it is concerned about the level of aid and whether the amount exceeds the 'regional handicap' of Leipzig compared with an alternative site in the Czech Republic.
In a statement, the Commission said: 'The German authorities notified on 3 December 2001 regional investment aid to BMW for a new car plant in Leipzig. The investment volume of this project amounts to approximately 1.2 billion Euros (net present value). Germany plans to grant an aid amount of 418.6 Euros (net present value), corresponding to an aid intensity of 34.7%.'
It added that the German authorities claim the best alternative location to Leipzig would have been an investment in Kolin in the Czech Republic.
Leipzig is a regionally assisted area with the regional aid ceiling usually 28% for large companies, the Commission said. However, it added, this ceiling may be increased to 35% for large companies under certain conditions.
The Commission said that Germany stated that these conditions had been fulfilled.
But, it added: 'The information so far provided by Germany in this complex case was not sufficient for the Commission to establish whether the planned aid is in line with the principles contained in the framework for aid to the motor vehicle industry, in particular as regards the so-called proportionality of the aid, as calculated in the cost/benefit analysis.
'The Commission has thus decided to open the formal state aid investigation procedure in order to give Germany as well as interested third parties the possibility to submit comments.'
BMW plans to produce the 3-series from the Leipzig production centre from 2005. In addition to body shell construction, a paint shop and a final assembly line, it also plans to build a supply centre and a test track there.