BMW plans second plant in US to supply engines for North American production

The announcement comes on the eve of the United States signing a new free trade agreement with a stricter local content requirement for cars.

US trade negotiators knew exactly what they were doing as part of the NAFTA review when they raised the local content requirement for automobiles in the new treaty – and BMW finally understood the message.

BMW chief executive, Harald Krüger, said in an interview at the Los Angeles Auto Show this week that the luxury automaker was considering a second factory in the United States. The largest assembly plant of the Munich-based automaker is located in Spartanburg, South Carolina, but the company is also planning to manufacture engines in the United States.

The new agreement between the United States, Mexico and Canada, to be signed this week in Buenos Aires, increases the requirement of local content content for cars in order to avoid customs duties, which was previously 62.5% to 75%. Currently, BMW and Daimler import from Europe engines for their US assembly, so that only 65 to 70% of the parts of the car are manufactured locally, depending on the model.

Suddenly, everything makes sense

In short, the only way for the two German car manufacturers to meet this new requirement is to use engines built in North America. "It's not enough to buy a little more steel from an American manufacturer," said one industry insider.

For a long time, BMW has been manufacturing the engines of its Chinese-made cars on site, but says that the volume of production in the United States does not justify the manufacture of engines on site. The insistence of German unions on maintaining their jobs in engine manufacturing has certainly played a role in BMW's thinking.

Now, BMW is building a Mexican assembly plant that will produce 150,000 units a year in addition to the 450,000 produced in Spartanburg – including the new X7 three-row SUV that debuted this week in Los Angeles. As a result, engine manufacturing in North America is much more profitable.

Maybe BMW has always planned to transfer some of the production of engines in North America, but the announcement of the signing of the USMCA is a striking coincidence.

Voluntary pawn?

If BMW is a pawn in the trade wars triggered by US President Donald Trump, it does not seem to want to play this role.

The company was hit by China's 25 percent punitive tariff on imports of US cars into China, a significant part of its US production going there. On its own, this measure costs BMW 300 million euros ($ 342 million) a year.

Having already transferred part of the production of SUV X3 to China, BMW is now thinking about the production of the X5, currently exported to China by the United States, in China. Beijing recently added another motivation by allowing BMW to become the first foreign producer to hold a majority stake in its joint venture in China.

Meanwhile, Trump still risks levying 25% tariffs on auto imports from Europe as part of its dispute with Brussels over the current disparity in tariffs. If this materializes, it will be even smarter to increase production in the United States.

Markus Fasse is a Munich correspondent for Handelsblatt. Darrell Delamaide has adapted this article in English for Handelsblatt Global. To contact the author: [email protected]