You are here

BMW's US$1b factory caught in Mexican standoff

ak_bmw_0306.jpg
PRESIDENT Donald Trump's vow to impose a 5 per cent tariff on Mexican goods comes just in time to hit exports from a US$1 billion BMW AG factory that opens in the country this week.

Munich

PRESIDENT Donald Trump's vow to impose a 5 per cent tariff on Mexican goods comes just in time to hit exports from a US$1 billion BMW AG factory that opens in the country this week.

A swathe of the 3-Series sedans to be made at the plant in San Luis Potosi are destined for US dealers. Higher duties mean a hard choice for the Bavarian carmaker - raise sticker prices or take the hit to profits on its best-selling model.

It's not the kind of calculation executives were expecting to make when they chose to build BMW's first factory in Mexico, with its low labour costs and zero duties on exports to the world's second-biggest car market. The tariffs will take effect on June 10, the US President said in a Twitter post on Thursday night.

sentifi.com

Market voices on:

It's another blow for a company whose sales are flat this year as German rivals challenge its dominance of the premium car segment, pushing profits to decade-lows. BMW spent years surfing on demand for prestige vehicles among China's emerging middle class, leaving it brutally exposed as Washington and Beijing erect new tariff barriers in an escalating trade dispute.

The Mexican factory is expected to account for one-fifth of BMW's North American production. BMW currently produces most of its cars for North America in South Carolina but leans heavily on components imported from Mexico. It bought US$2.5 billion worth of parts from Mexican suppliers in 2015.

BMW is now expected to ramp up its Mexico output slower than originally planned, said Juergen Pieper, head of automotive research at Bankhaus Metzler.

In a research note on Friday, Evercore ISI analyst Arndt Ellinghorst said the tariffs could be a "major blow" for BMW and other carmakers. "MAGA clearly does not stand for 'Make Auto Great Again'," he wrote. BLOOMBERG