BMW is considering building a new manufacturing facility in Mexico, reports Automotive News Europe (ANE). The chief executive officer (CEO) of its BMW of North America operations, Ludwig Willisch, told the trade publication in an interview that the automaker has been in preliminary discussions with "local governments" in the country with regards the possibility of building a factory in their regions. However, he said that before the automaker commits to investing in the country, other developments will need to take place. Willisch said that among them would be the free trade agreement (FTA) between the United States and the European Union (EU), which would offer it the flexibility and cost structure for such a move to make sense. With this in mind, the senior executive warned that production of BMW Group vehicles in the country "could be as long [away] as 10 years from now," and that more substantive talks with regional governments would not take place until an FTA is agreed.
Given the potentially distant nature of its commitment, Willisch also refused to give any indication as to what regions the automaker has been talking to and which models it would intend to build there.
Outlook and implications
BMW already has one significant production location in North America across the border in Spartanburg, South Carolina (United States), which manufactures its sport utility vehicle (SUV) offerings, the BMW X3, X5 and X6, with output having grown to around 300,000 units per annum (upa) during 2013, a record level for this site. However, next year the company will also add its new X4 to the sites output, boosting output further. Output will be given a further uplift in 2016 once the next generation 5 Series is manufactured at the site for domestic consumption.
Nevertheless, despite already having plans to expand its North American operations, manufacturing in Mexico could present it with further opportunities. Certainly this is not lost on other members of the automotive manufacturing community, which have been drawn to country due to lower wages, increasingly skilled workforce and favourable trade pacts with North and South America. Driven by this, increased investment in Mexico's automotive sector is already coming from several automakers and component suppliers. These include General Motors (GM), Ford, Honda, Mazda, Toyota, Renault-Nissan, and Volkswagen (VW) Group. IHS Automotive expects production in Mexico to reach 4 million units in 2018, up from 1.4 million in 2009. The VW Group's investment will be partly undertaken by the Audi brand, BMW's upstart rival. It has already broken ground at its site in San José Chiapa (Mexico) earlier this year, and is intending to produce around 150,000 upa of its Q5 SUV from 2016, which will eventually be joined by the Q6 SUV, and could see output double. Potentially joining this group of automakers could also be rival in the premium sector Daimler, which has also been linked with a site in Mexico despite having an already successful plant in Alabama (United States), supported by its alliance with Renault-Nissan .
Should BMW decide to go ahead with this plan, it would be its third manufacturing site in the Americas, having already announced that it is planning to undertake production in Brazil. This was announced in the fourth quarter of last year and the decision has been taken on the back of the enormous growth potential that the market has and a result of the new tax infrastructure that the government has introduced which is aimed at encouraging local manufacturing. BMW is looking to have the plant operational by 2014, with a plan for the facility to have an initial production capacity of 30,000 upa. However, following BMW's commitment, both Audi and Daimler are also said to be eyeing the possibility of local investment to gain the same benefits as they seek to check their compatriot. This comes as each are seeking to steal a march on the other as they continue to grow strongly, a situation that looks set to take place unabated, at least in the near term.
| Analyst Contact Details: | Ian Fletcher |
