BMW plans first EU plant in two decades amid trade tensions

Bloomberg

BMW AG is building its first factory in Europe in nearly two decades, strengthening its footprint close to home as growing protectionism adds to the cost of shipping cars around the globe.
The carmaker is investing $1.17 billion in a new production plant in Hungary to produce 150,000 vehicles annually, according to a statement. It’ll be BMW’s first new carmaking facility since 2000 in the region, when it built a site in Germany, a spokesman said.
BMW, like other global carmakers, is under pressure to adjust to shifting global trade politics that are undermining a decades-long move to lower barriers. Depending on what type of cars the company will build in Hungary, the plant could help offset growing risks.
Making sport utility vehicles in Europe would help insulate BMW from rising trade tensions affecting its US plant. It could also add flexibility to counter interruptions to the flow of Mini city cars, made in Oxford, England, to the EU after Brexit.
“It looks like this is a decision led by risk minimisation and cost optimisation,” Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler said. “Western Europe is too expensive, Mexico and the UK bear tariff risks, and the US plant is already huge.”
BMW said it has no plans to make Mini cars in Hungary while declining to specify which models it’ll make at the new site. The company exports most of its popular SUVs from its Spartanburg, South Carolina, factory to Europe, a strategy that could become increasingly challenged if tariff threats become reality.
The company picked Hungary as its newest production location, even as European sales of BMW and Mini cars rose only 1.2 percent during the first half, trailing growth elsewhere.
The German manufacturer announced it had raised prices for SUVs imported from the US. into China after the Asian
nation increased tariffs, retaliating against President Donald Trump’s increase in levies on Chinese imports.
Separately, the company is grappling with the risk of Brexit hitting its facilities in the UK. It exports Mini city cars, engines and Rolls-Royce vehicles worth some $3.1 billion from the country. The company warned of the detrimental effect if a Brexit deal isn’t reached.
“We are now strengthening our activities in Europe to maintain a worldwide balance of production between Asia, America and our home continent,” BMW CEO Harald Krueger said. Construction near the town Debrecen, about 124 miles east of Budapest, will start in the second half of 2019.
BMW announced it’ll add the X3 SUV to its lineup of China-made models for local buyers, a prescient move that preceded an increase of Chinese import tariffs for US-made cars to 40 percent as of July.