BMW’s $1 billion factory caught in Mexican standoff

Bloomberg

President Donald Trump’s vow to impose a 5 percent tariff on Mexican goods comes just in time to hit exports from a $1 billion BMW AG factory that opens in the country next 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 automaker — 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, US President Donald Trump said in a Twitter post.
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 em-erging middle class, leaving it brutally exposed as Was-hington 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 $2.5 billion worth of parts from Mexican suppliers in 2015.
BMW is now expected to ramp up Mexico output slower than originally planned, said Juergen Pieper, head of automotive research at Bankhaus Metzler. In a research note, 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.