Bayerische Motoren Werke AG (BMW) decided in 2014 to open a new plant in San Luis Potosí, Mexico. Production will begin in 2019 and the 3-Series Sedan will be built there. Today, the 3-series sold in the U.S. are built in Germany and South Africa, but when the Mexican plant opens South African output will cease. BMW has invested $1 Billion in the new plant. In recent years other large car manufacturers have been building factories in Mexico like Kia Motors building a factory in Nuevo León, Mercedes-Benz, Nissan, and Audi are each building one near Puebla.

The plant will produce 150,000 cars annually. It will be BMW’s second plant in North America, the other one is in South Carolina. Mexico has low labor cost, a growing supplier network and free-trade pacts, which are all attractive to BMW. BMW has also received incentives to invest in Mexico. BMW acquired $236 million in local aid for a commitment to create 1,500 jobs and invest $1 billion by 2024. They receive a 10-year tax break, where they don’t have to pay state and local taxes for 10 years. (Kurylko, 2017) & (BMW, 2017)

President Trump has threatened to impose a 35% tariff on BMW imports from Mexico. Trump’s feud and possible trade war with Mexico is extremely worrying. (Solomon, 2017) BMW might suffer a crippling loss if the tariffs are imposed. Right now Trump can’t impose such tariffs, but it is unclear what might happen in the following years, right now NAFTA prevents this from happening. If that disappears trading would become much more expensive.

What is slightly worrying about the investment is that the Current Ratio has decreased over the last 5 years. The Current ratio in 2015 was 0.94 (The Wall Street Journal). BMW might not be able to pay of their investment. Of course their costs have been rising, but so has the revenue. In 2015 the Gross profit was over €16,000,000 (thousands). (The Wall Street Journal) BMW needs to maintain liquidity as they continue to grow. If BMW backs out of their plan it would lose incredible amount of money.

SWOT for Investing in New Mexico Plant:

Strengths: One of the most valuable automotive brands in the world High-quality engineering and excellent driving experience	Weaknesses: Increasing debt levels Lack of strategic partnerships compared to the competition
Opportunities: Fuel prices are expected to rise in the near future Formation of strategic alliances with other automobile companies	Threats: Increasing competition in the worldwide automotive market Government regulations may raise the costs of imports to the U.S.

Bibliography:

Bayerische Motoren Werke AG Financials. (n.d.). Retrieved September 26, 2017, from http://quotes.wsj.com/XE/BMW

BMW Group celebrates ground-breaking for new plant in Mexico. (n.d.). Retrieved September 26, 2017, from https://www.press.bmwgroup.com/global/article/detail/T0261073EN/bmw-group-celebrates-ground-breaking-for-new-plant-in-mexico?language=en

Gibbs, A. (2017, January 09). BMW remains committed to its new Mexican plant, despite Trump’s recent tweets. Retrieved September 26, 2017, from https://www.cnbc.com/2017/01/09/bmw-remains-committed-to-its-new-mexican-plant-despite-recent-donald-trump-tweets.html

Kurylko, D. T. (n.d.). BMW to build next-gen 3-series sedan in Mexico starting in 2019. Retrieved September 26, 2017, from http://www.autonews.com/article/20160616/OEM01/160619925/bmw-to-build-next-gen-3-series-sedan-in-mexico-starting-in-2019

Solomon, F. (2017, January 09). BMW Is Committed to Mexico Factory, Despite Trump’s Tax Threats. Retrieved September 26, 2017, from http://fortune.com/2017/01/09/bmw-trump-mexico-border-tax/