Overlook China, Mexico’s Trump card is BMW’s secret weapon for electrical vehicles

Take the i3, audacious in design and standard over the 11 years of its manufacture, promoting 1 / 4 of one million items. Now, BMW is hoping to change into a pacesetter in electrification once more with its Neue Klasse era. Nonetheless, it received’t be making these new EVs within the U.S. They are going to be manufactured in Mexico. With the dangers of commerce wars on the horizon, this may very well be a sensible transfer.

Regardless of the top begin, BMW did not reap the benefits of its early lead when the second wave of EVs just like the Tesla Mannequin 3 and Y went international in 2019/20. The corporate has returned to type since then with an intensive electrical vary, which enabled it to surpass Tesla in gross sales in Europe in July. 

Nonetheless, most of those present EVs are constructed on platforms shared with inner combustion engine fashions, as BMW hedged its bets whereas electrical market development remained unpredictable. The upcoming Neue Klasse is completely different. It’s designed for Battery Electrical Automobiles (BEVs) first.

Neue Klasse Déjà Vu All Over Once more?

The brand new Neue Klasse harks again to BMW’s company-saving technique of the Nineteen Sixties, additionally of the identical title. Again then, BMW was producing some good vehicles, such because the tiny Isetta and delightful 502 convertible, however was failing to promote them in sufficient quantity leading to monetary issue. So with the 1962 Neue Klasse, BMW dropped all of the outdated fashions and moved to a shared platform throughout the vary, leading to much-loved autos such because the 1800 and 2002. This laid the inspiration for the fashions that at the moment are globally acquainted, such because the 3-series.

BMW isn’t dealing with the identical monetary points because the early Nineteen Sixties, though it has seen its earnings plunge by 84 % on account of a stoop in gross sales in China. However electrification is a big problem to your entire automotive trade, with many incumbent producers being left behind. Globally, Tesla and BYD dominate BEV gross sales, shifting over one million vehicles every within the first three quarters of 2024. Geely and Volkswagen are a distant third and fourth respectively promoting half one million apiece. All 4 focus totally on BEV-native designs. Whereas wager hedging has benefits in the course of the transition, it misses out on the benefits a platform designed particularly for batteries can supply, equivalent to higher inner area.

The brand new Neue Klasse alerts that BMW has realized that the transition is previous the purpose of no return and it’s time to go “all in” with BEVs. The corporate is clearly anticipating this new era of vehicles to be simply as game-changing as its Nineteen Sixties pivot. Though the poster little one of the brand new Neue Klasse has been the sedan, an SUV (which BMW calls SAV, standing for sports activities exercise car) goes to be the preliminary launch in 2025. The first manufacturing unit to construct Neue Klasse vehicles has been the plant in Debrecen, Hungary, with Munich turning into solely all-electric in 2027. This is smart to serve the European market–however what concerning the vital US market?

Versatile Mexico

Enter Mexico. You’d suppose BMW could be constructing its EVs within the U.S. for the U.S. market, and for many of its mainstream inner combustion fashions, it has, by way of its enormous plant in Spartanburg, South Carolina, which produces 1,500 vehicles a day. Nonetheless, BMW has confirmed the potential for Mexico as a worldwide heart for automobile manufacturing, with the profitable 2-series and its sizzling M2 spinoff made solely in Mexico for your entire international market. In America, the 2-series has received a sequence of coveted high quality awards from J.D. Energy, exhibiting the standard that the Mexican operation is able to.

At the moment, BMW’s manufacturing unit in San Luis Potosí, Mexico, is the corporate’s latest facility, and the development work is properly underway so as to add an 80,000m2 battery pack manufacturing unit to serve the Neue Klasse EVs, which is able to start manufacturing in 2027. 

Based on Oliver Haase, Senior Vice President for Buying, High quality and Provider Community, BMW Group Americas, Mexico is a “natural fit for manufacturing the next generation of BMW EVs for the Americas market.” He additionally sees its potential past the North and South American continents. “BMW will be the first premium automaker to produce EVs and batteries in Mexico.”

That is about far more than low-cost labor prices. “Mexico has 14 free trade agreements with 50 countries,” says Francisco N. González Díaz, Government President, Industria Nacional de Autopartes, A.C.. Most essential amongst these is the USMCA with the USA and Canada (previously NAFTA), however Mexico additionally has an settlement with the European Free Commerce Affiliation, together with the EU, Iceland, Norway, Lichtenstein and Switzerland. There are agreements with most of South and Central America, plus the U.Ok. and the CPTPP, which incorporates Australia, Japan, New Zealand and Singapore. “This makes it an incredibly good place to build cars for a global market.”

Placing that in perspective, Mexico exports a higher worth of vehicles to Germany than China or the U.Ok. – practically $4.8 billion in 2023 (this contains different manufacturers than simply BMW). The nation has a thriving automobile half provide chain and prepared availability of STEM graduates for employment within the auto trade. BMW places numerous effort into offering coaching and apprenticeship alternatives with native universities and has even turned its authentic greenfield workplace constructing at San Luis Potosí right into a youth exercise heart for the native space known as the Membership de Niños y Niñas.

The Neue Klasse has been pitched as an all-electric era. Nonetheless, Haase admits this doesn’t imply the top of inner combustion at BMW. “The Neue Klasse will lead the design direction,” he says, “but there will be room for vehicles with other types of powertrains within the new generation.” Similarly, Stellantis’s latest BEV-focused platforms, equivalent to that used within the Peugeot e-3008, additionally help hybrid inner combustion motors. 

Mexico’s Trump Card?

Donald Trump’s reelection may very well be a spanner within the works for BMW’s Mexico technique. Throughout his marketing campaign, on the Joe Rogan podcast he proclaimed his timeless love for tariffs and threatened a 60% tax on imports. EVs made in China already face 100% tax when imported into the USA. Even with China’s significantly decrease manufacturing prices, that has left Chinese language automakers on the lookout for native manufacturing or placing all ideas of getting into the American market on maintain.

Mexico’s auto trade exported over $64 billion within the first half of 2024. That’s a big contribution in the direction of the nation’s revenue, with a GDP of $1.789 trillion in 2023. Mexico imported simply over $41 billion in auto merchandise, giving a constructive commerce stability of practically $23 billion, with the U.S. being the most important contributor and rising. That’s the form of deficit the President-Elect want to reverse again within the U.S.’s favor. Trump has not talked about canceling the USMCA but. There was a joint overview already scheduled for 2026, however this solely begins a ten-year clock for the expiration of the USMCA, and Trump is extra centered on proscribing Chinese language corporations than German ones working manufacturing in Mexico. Nonetheless, he may additionally attempt to prohibit imports from elsewhere, together with Mexico.

BMW already has its enormous U.S. manufacturing plant in Spartanburg, North Carolina, so in idea, it may swap some manufacturing there – though it received’t be straightforward contemplating how a lot work (and cash) has gone into making ready the manufacturing unit in Mexico to make EVs. A spokesperson for BMW informed Fortune: “Nothing will be forthcoming at this stage. It’s too early for us and we don’t wish to speculate.” That appears to be the temper of the second, with different corporations making related statements. No one is aware of precisely what President-Elect Trump plans to do (in all probability together with himself). Nonetheless, whereas he may renegotiate the USMCA, that received’t instantly have an effect on Mexico’s different commerce offers.

He may set off a tit-for-tat worldwide commerce conflict, with non-U.S. commerce agreements caught within the crossfire. However even Trump is unlikely to have the ability to demolish the difficult lattice of world offers in his 4 years as US president. Regardless of latest political occasions, BMW’s plan to make the Neue Klasse in Mexico nonetheless appears sensible. Not solely does it allow supply of BMW’s new electrical era to the important thing U.S. and Americas market. It might probably ship this very important new vary to many different international locations with minimal commerce obstacles.