BMW advances on Mexican plant despite Trump threats

German carmaker BMW reaffirmed Monday its plans to open a new production facility in San Luis Potosí, Mexico, in response to the latest threat from US president-elect Donald Trump of a 35% "border tax" on vehicles assembled there.

A statement to the press from Peter Schwarzenbauer, a member of BMW's management board, reported by Mexican daily El Financiero, clarified that its plans to open the BMW 3 Series assembly plant in 2019 will continue, despite the words of warning from the incoming US leader reported Sunday in German magazine Bild.

At its groundbreaking ceremony last June, BMW said the plant would create 1,500 new jobs, produce 150,000 cars per year and involve US$2.2bn in investment.

At that time, the German firm said it was investing US$1bn in its X-series plant in Spartanburg, South Carolina, as part of its Nafta-region growth plan, and it would be integral to training for the San Luis Potosí plant.

"The plant in San Luis Potosí will benefit from experience within the BMW Group production network. Plants Munich and Spartanburg are demonstrating their strengths by helping set up the Mexican facility," read the firm's press release.

The German magazine reported that Trump said in an interview that it would be "much better" for BMW, which directly or indirectly generates 70,000 jobs in the US, to build its facility in the US, as automakers will face a 35% tax on vehicles assembled south of the border.

"I would tell BMW, if you are building a factory in Mexico and plan to sell cars in the United States, without a rate of 35% tax, then you can forget it," said Trump - translated into German in the Bild article.

"If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the US, you will pay 35% tax," added Trump.

In an email to BNamericas, BMW Group Mexico, Latin America and the Caribbean's corporate communications director Vladimir M. de C. Mello said: "Our project for the plant in San Luis Potosí is developing normally, and we maintain our obligation to the plant project and to Mexico."

Trumps remarks build on an ongoing campaign of intimidation against businesses seeking to take advantage of Mexico's infrastructure and lower labor costs by promising steep tariffs on goods entering the US from its southern neighbor.

Under the auspices of repairing damage created by Nafta, Trump's threats have borne fruit in the way of cancelation of production plans from US air conditioner producer Carrier in December and more recently US automaker Ford's decision to pull out of a US$1.6bn assembly plant, which was also set to open in San Luis Potosí.

The latter sparked further depreciation of the Mexican peso, which has fallen from 20.74 to the US dollar the day before Ford's announcement to a high of around 21.5 pesos the day after it confirmed the pullout. The peso was trading around 21.63 to the dollar in mid-morning trading Monday.

In response, the central bank sold US$2bn in reserves to counteract the peso depreciation. Analysts see the bank under increasing pressure to make further hikes to its benchmark rate this year, with some seeing it climb as high as 7.5% by year-end, although, the bank has countered by saying it sees current inflation as temporary.

With the latest missive, Trump's warnings of a 35% import tax reinforce a trend, expanding his rhetoric beyond US manufacturers and targeting foreign firms with heavy sales stateside.

Trump's January 5 tweet stated, "Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in US or pay big border tax." (Note: Trump erred by referring to a planned Guanajuato plant, not the existing facility in Baja California).

That tweet sparked a sudden US$1.2bn drop in Toyota's market capitalization and a swift response by the carmaker to reaffirm its desire to work with Trump on trade.

The new BMW plant adds to its plants in China and Germany that make the 3 Series and is projected to create 1,500 additional jobs in Mexico.

US automaker GM has also confirmed plans in Mexico despite Trump's twitter-based warnings against the firm, saying it will move production of its Terrain SUV to Mexico as part of its US$5bn planned investments in the country, first announced in late 2014.