Plans For $1 Billion EV Investment In Mexican BMW M2 Plant Delayed

Dec. 17, 2022 4:16 PM ET by Gerhard Horn Industry News / 3 Comments

BMW likely wants to see what will happen with the Inflation Reduction Act.

BMW has reportedly decided to postpone a billion-dollar EV manufacturing upgrade to its factory in San Luis Potosi, Mexico.

Juan Carlos Valladares Eichelmann, the head of the Secretariat of Economic Development in Mexico, confirmed the delay. According to a report by Mexico Now, this is the third time the decision has been delayed. A green light was expected at the end of November, after which it was moved to the end of 2022. The final answer will now only be given in the first quarter of 2023, assuming there are no further delays.

BMW's sudden interest in its San Luis Potosi plant likely results from the new Inflation Reduction Act. In short, all BMW EVs are made in Germany and China. To get its customers some of that sweet government money, it needs to assemble EVs in the USA or any country that has a free trade agreement with America (broadly speaking - other requirements are stipulated in the IRA too).

There's also another reason BMW is interested in Mexico. The San Luis Potosi plant only ran at 39% capacity last year, though that may increase now that it has started assembling the all-new BMW M2. Bimmer's South Carolina plant is running at near full capacity, despite a recent $100 million investment in a new one-million-square-foot facility.

Valladares Eichelmann did say that communication channels remain open and that negotiations are going well. However, he also stated that not even the locals employed at the plant know what's going on at the moment.

According to Valladares Eichelmann, the US has been "very aggressive" in terms of incentives, hoping to lure the Germans further south. Mexico can't offer as many incentives, but it can compete in other ways. Those ways are not mentioned, however. Bear in mind that Mexico is not the only place BMW could choose to invest in improved EV manufacturing capacity.

The Mexican and local governments have done all they can to meet the conditions of a possible investment, and now it's just a case of waiting.

What reason could BMW possibly have for postponing the announcement? BMW's Mexican plant is obviously not sub-standard. Otherwise, it would not have been tasked with building the most affordable M car.

It all boils down to the Inflation Reduction Act, which has been met with widespread criticism. Some manufacturers have caved and are in the process of setting up shop in the US, while others are actively combatting the legislation. Japan's government has called it illegal, while companies like Nissan are looking at loopholes for volume models like the new Ariya.

The way we see it, BMW is holding off to see how all of this plays out. While the Inflation Reduction Act is meant to force manufacturers to rely less on Chinese batteries, there have been a series of unintended consequences, like fewer models qualifying for the tax incentive.