By Jorn Madslien
Business reporter, BBC News, Paris Motor Show
Rolls-Royce's current flagship model is the Phantom
BMW is aiming to add a smaller, "baby" model to its luxury Rolls-Royce brand by the end of the decade.
Design work has begun on the latest recruit to the brand, which will be built at Rolls-Royce's factory at Goodwood in West Sussex.
It will sell for 200,000-300,000 euros (£135,000-£200,000) - less than Rolls Royce's Phantom model, but more than BMW's top-of-the-range 7 series.
Bosses said there was room for a new "unique" Rolls-Royce between the two.
They emphasised that it was not intended to compete with rival car maker Bentley's successful Continental GT, which has cornered the sub-160,000-euro (£105,000) market.
Rolls-Royce has recently launched a new apprentice programme at its Goodwood site to help train up young recruits in some of the leather and woodworking skills used in its cars.
Rolls-Royce Motor Cars chief executive Ian Robertson said an extra production shift would be brought in at Goodwood when the new car goes into production.