Last week, President Trump announced in his typical fashion, on Twitter, that he will instate a tariff on goods imported from Mexico, starting on June 10. This will definitely cause a mild storm over BMW’s parade, the Bavarians planning to open their new, fancy San Potosi plant this week. The BMW Group invested heavily in their new, state of the art plant and were planning on using it to export various models to the US from a lot closer than the EU, thus saving some money in the process.
According to the message posted on Twitter, there will be a 5 percent tariff imposed on Mexican goods coming into the US and that will definitely put a dent into the plans of BMW, the company previously investing some $1 billion in the Mexican location. The question now is: will BMW increase the price of its cars and pass the tax to the buyers or will it take the hit and cut even deeper into its profits?
The companies in the automotive industry have already invested heavily in R&D hitting their proposed profit rates rather hard in recent years. When the plant was agreed upon, the idea of such possible trade tariffs wasn’t even on the radar. Mexico is viewed as quite profitable by a lot of companies, thanks to its low labor costs and location. Chip in the – now former – zero duties on exports to the world’s second-biggest car market and it looked like a really good deal. Not anymore though, as the 5 percent tariff is set to go in effect next week.
We’ll have to wait and see what the next move will be from BMW. The San Potosi plant is meant to account for 20 percent of BMW’s production in North America and it is seen as critical for keeping up with the demand in the US. Furthermore, billions of dollars worth of parts are imported from Mexico for the South Carolina plant at Spartanburg, where BMW is making its entire line-up of SUVs and that could also have an impact on the pricing on the longer run.