Neglect China, Mexico’s Trump card is BMW’s secret weapon for electrical automobiles

Take the i3, audacious in design and well-liked over the 11 years of its manufacture, promoting 1 / 4 of one million models. Now, BMW is hoping to develop into a frontrunner in electrification once more with its Neue Klasse technology. Nonetheless, it gained’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 didn’t make the most of its early lead when the second wave of EVs just like the Tesla Mannequin 3 and Y went world 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 inside combustion engine fashions, as BMW hedged its bets whereas electrical market progress 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 sensible automobiles, such because the tiny Isetta and exquisite 502 convertible, however was failing to promote them in sufficient quantity leading to monetary problem. So with the 1962 Neue Klasse, BMW dropped all of the outdated fashions and moved to a shared platform throughout the vary, leading to much-loved autos such because the 1800 and 2002.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 muse for the fashions that are actually globally acquainted, such because the 3-series.

BMW isn’t going through the identical monetary points because the early Nineteen Sixties, though it has seen its income plunge by 84 % as a consequence of a hunch in gross sales in China. However electrification is a large problem to the complete automotive trade, with many incumbent producers being left behind. Globally, Tesla and BYD dominate BEV gross sales, shifting over one million automobiles 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 guess hedging has benefits through the transition, it misses out on the benefits a platform designed particularly for batteries can supply, akin to larger inside house.

The brand new Neue Klasse indicators 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 technology of automobiles 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 automobile) goes to be the preliminary launch in 2025. The first manufacturing facility to construct Neue Klasse automobiles has been the plant in Debrecen, Hungary, with Munich changing into solely all-electric in 2027. This is sensible to serve the European market–however what in regards to the crucial US market?

Versatile Mexico

Enter Mexico. You’ll suppose BMW can be constructing its EVs within the U.S. for the U.S. market, and for many of its mainstream inside combustion fashions, it has, by way of its large plant in Spartanburg, South Carolina, which produces 1,500 automobiles a day. Nonetheless, BMW has confirmed the potential for Mexico as a world heart for automotive manufacturing, with the profitable 2-series and its scorching M2 by-product made solely in Mexico for the complete world market. In America, the 2-series has gained a sequence of coveted high quality awards from J.D. Energy, displaying the standard that the Mexican operation is able to.

At the moment, BMW’s manufacturing facility 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 can start manufacturing in 2027. 

In line with Oliver Haase, Senior Vice President for Buying, High quality and Provider Community, BMW Group Americas, Mexico is a “pure match for manufacturing the following technology of BMW EVs for the Americas market.” He additionally sees its potential past the North and South American continents. “BMW would be the first premium automaker to provide EVs and batteries in Mexico.”

That is about way more than low cost labor prices. “Mexico has 14 free commerce agreements with 50 international locations,” 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.Okay. and the CPTPP, which incorporates Australia, Japan, New Zealand and Singapore. “This makes it an extremely good place to construct automobiles for a world market.”

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

The Neue Klasse has been pitched as an all-electric technology. Nonetheless, Haase admits this doesn’t imply the tip of inside combustion at BMW. “The Neue Klasse will lead the design path,” he says, “however there can be room for autos with different forms of powertrains throughout the new technology.” In a similar way, Stellantis’s current BEV-focused platforms, akin to that used within the Peugeot e-3008, additionally help hybrid inside 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 searching for native manufacturing or placing all ideas of coming 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 almost $23 billion, with the U.S. being the most important contributor and rising. That’s the type 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 evaluate already scheduled for 2026, however this solely begins a ten-year clock for the expiration of the USMCA, and Trump is extra centered on limiting Chinese language firms than German ones working manufacturing in Mexico. Nonetheless, he might additionally attempt to limit imports from elsewhere, together with Mexico.

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

He might 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 sophisticated lattice of worldwide offers in his 4 years as US president. Regardless of current 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 technology to the important thing U.S. and Americas market. It may well ship this important new vary to many different international locations with minimal commerce obstacles.