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BMW to spend $1 billion to build new Mexican auto factory

BMW is planning on spending $1 billion to

BMW is planning on spending $1 billion to construct a new auto factory in Mexico. Credit: AP

BMW plans to invest about $1 billion in a new factory in Mexico, catching up with its German competitors in manufacturing luxury cars in the Latin American country, a person familiar with the matter said.

The German automaker's second plant in North America will produce about 150,000 cars a year when production starts by 2019, said the person, who asked not to be identified before an official announcement. The factory will be located in San Luis Potosi, 250 miles northwest of Mexico City, and will employ about 1,500 people, the person said.

BMW will release details of a decision on July 3, Mathias Schmidt, a spokesman for the Munich-based company, said by phone, declining to comment on the plans.

The maker of BMW, Mini and Rolls-Royce vehicles is the last of the world’s top three luxury-car makers to outline plans to build vehicles in Mexico, where labor costs are about 20 percent of U.S. levels. Daimler AG’s Mercedes-Benz last week announced plans to produce autos jointly with Nissan Motor Co.’s upscale Infiniti unit starting in 2017 in Aguascalientes. Volkswagen AG’s Audi plans to start assembling sport-utility vehicles in San Jose Chiapa in 2016.

“BMW can’t afford to compete with Mercedes and Audi at a labor-cost disadvantage,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. Still, the German manufacturers are “taking significant risks in a country that has little history of manufacturing luxury cars.”

BMW, Audi and Mercedes are all expanding as they target record deliveries and vie with one another for the global sales lead. Both Audi and Mercedes have vowed to overtake BMW by the end of the decade.

Production in North America helps European automakers reduce the impacts of dollar-euro fluctuations. Currency shifts may weigh on car-division revenue this year, BMW said in March. Factories in Mexico give manufacturers tariff-free access to the U.S., the world’s biggest economy, while enabling them to keep costs in check.

The new Mexican plant follows BMW’s decision to invest $1 billion to raise production capacity 50 percent at its facility in Spartanburg, South Carolina. The plant will have the ability to make as many as 450,000 vehicles, including the new full-sized X7 SUV, by 2016.

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