Bayerische Motoren Werke AG’s share price up, plans a $1 billion investment in a new car plant in Mexico

BMW intends to make a $1 billion investment in a new plant situated in Mexico, a person with direct knowledge of the issue said, as exporting production of cars to the country has become the newest currency price hedge for German car manufacturers.

The company refused to make any comments on its plans or disclose any details. It only explained that an announcement is scheduled to be made this week in Mexico.

The factory would be the first assembly plant of BMW in the country, and the move comes as auto-industry manufacturing in the Latin American country is gaining pace. According to the person with knowledge of the matter, the factory is expected to manufacture about 150000 units every year, and production is planned to start by 2019. The plant is to be situated in San Luis Potosi, about 250 miles northwest of Mexico City, and will offer about 1500 jobs positions.

Previously, BMW decided to invest another $1 billion to increase production capabilities of its facility in Spartanburg, South Carolina.

Erik Gordon, professor at the University of Michigans Ross School of Business, commented on the situation for Bloomberg: “BMW can’t afford to compete with Mercedes and Audi at a labor-cost disadvantage.” Mr. Gordon also said that the German producers are “taking significant risks in a country that has little history of manufacturing luxury cars”.

German car manufacturers have been investing in production in North America, as they strive to soften blows by fluctuations of the euro-dollar currency pair. Currency shifts may weigh on car-division revenue this year, BMW said in March, Bloomberg reported.

Just last week Mercedes announced its intention to set up production in Aguascalientes, while Audi plans car assembly to start in San Jose Chiapa by 2016.

Auto and auto-parts account for 20% of Mexicos manufacturing sector and it contributes about 4% of Mexican GDP, according to the Wall Street journal.

Bayerische Motoren Werke AG added 1.20% to trade at 94.42 euros per share by 9:49 GMT, marking a one year change of +42.13%. According to the Financial Times, the 31 analysts offering 12-month price targets for Bayerische Motoren Werke AG have a median target of 100.00, with a high estimate of 122.10 and a low estimate of 79.00.