Take the i3, a bold design and popular in the eleven years it was made, selling a quarter of a million units. Now BMW hopes to become a pioneer in electrification again with the Neue Klasse generation. However, these new electric vehicles will not be manufactured in the USA, but in Mexico. Given the threat of looming trade wars, this could be a smart move.
Despite the lead, BMW failed to capitalize on its early lead as the second wave of electric vehicles such as the Tesla Model 3 and Y became widespread worldwide in 2019/20. Since then, the company has gotten back on its feet with an extensive electrical range allowed it to surpass Tesla in sales in Europe in July.
However, most of these current electric vehicles are based on platforms shared with internal combustion engine models, as BMW has hedged its bets while the growth of the electric market has remained unpredictable. The upcoming new class is different. It is primarily designed for battery electric vehicles (BEVs).
New class Déjà Vu again?
The new Neue Klasse follows BMW’s corporate savings strategy of the same name from the 1960s. At the time, BMW produced some brilliant cars, such as the little Isetta and the beautiful 502 Cabriolet, but was unable to sell them in sufficient numbers, leading to financial difficulties. With the Neue Klasse of 1962, BMW dropped all of the old models and moved to a common platform for the entire range, resulting in popular vehicles such as the 1800 and the 2002. This laid the foundation for the models that are known worldwide today, such as the 3 Series.
However, BMW is not facing the same financial problems as it was in the early 1960s Due to a decline in sales in China, the company suffered an 84 percent drop in profits. But electrification poses major challenges for the entire automotive industry and many established manufacturers are left behind. Globally, Tesla and BYD dominate BEV sales, each selling over a million cars in the first three quarters of 2024. Geely and Volkswagen are a distant third and fourth, selling half a million cars each. All four focus primarily on BEV-native designs. While there are benefits to bet hedging during the transition, it does not take advantage of the benefits that a platform designed specifically for batteries can offer, such as larger interior space.
The new Neue Klasse signals that BMW has recognized that the transition has passed the point of no return and it is time to go “all in” on BEVs. The company clearly expects this new generation of vehicles to be as groundbreaking as its 1960s predecessor. Although the flagship of the new Neue Klasse was the sedan, an SUV (called SAV by BMW, which stands for “Sports Activity Vehicle”) will come onto the market for the first time in 2025 The first factory to build New Class cars was the factory in Debrecen, Hungarywith Munich becoming exclusively fully electric in 2027. That makes sense to serve the European market – but what about the critical US market?
Flexible Mexico
Enter Mexico. You’d think BMW would build its electric vehicles in the U.S. for the U.S. market, and it has done so for most of its mainstream combustion models through its massive plant in Spartanburg, South Carolina, which produces 1,500 cars a day . However, BMW has demonstrated Mexico’s potential as a global automobile production center by manufacturing the successful 2 Series and its popular M2 derivative exclusively in Mexico for the entire global market. In America, the 2 Series has won a number of coveted quality awards from JD Power, showing the quality the Mexican company is capable of.
Currently, the BMW plant in San Luis Potosí, Mexico, is the company’s newest facility, and construction work is in full swing to add an 80,000 m² battery pack production unit for the Neue Klasse electric vehicles, whose production will begin in 2027 Gang.
According to Oliver Haase, senior vice president of purchasing, quality and supplier network for BMW Group Americas, Mexico is “naturally suited to producing the next generation of BMW electric vehicles for the American market.” He also sees potential in this beyond the North and South American continents. “BMW will be the first premium car manufacturer to produce electric vehicles and batteries in Mexico.”
This is about much more than just cheap labor costs. “Mexico has 14 free trade agreements with 50 countries,” says Francisco N. González Díaz, Executive President, Industria Nacional de Autopartes, AC. The most important is the USMCA with the USA and Canada (formerly NAFTA), but Mexico also has an agreement with the European Free Trade Association, which includes the EU, Iceland, Norway, Lichtenstein and Switzerland. There are agreements with most of South and Central America, as well as the United Kingdom and the CPTPP, which includes Australia, Japan, New Zealand and Singapore. “That makes it an incredibly good place to build cars for a global market.”
Mexico is “naturally suited to producing the next generation of BMW electric vehicles for the American market.”
Oliver Haase, Senior Vice President for Purchasing, Quality and Supplier Network, BMW Group Americas
In comparison, Mexico exports a greater value of cars to Germany than China or the United Kingdom – almost $4.8 billion in 2023 (this includes brands other than just BMW). The country has a thriving auto parts supply chain and a high availability of STEM graduates for employment in the automotive industry. BMW goes to great lengths to offer training and education opportunities at local universities and has even converted its original greenfield office building in San Luis Potosí into a youth activity center for the region called Club de Niños y Niñas.
The New Class was touted as a fully electric generation. However, Haase admits that this does not mean the end of internal combustion engines at BMW. “The New Class will set the design direction,” he says, “but there will be room within the new generation for vehicles with other powertrains.” Similarly, Stellantis’ recent BEV-focused platforms, such as those in the Peugeot e- 3008 are used, hybrid combustion engines.
Mexico’s trump card?
The re-election of Donald Trump could be a decisive factor for BMW’s Mexico strategy. During his campaign, he proclaimed his undying love for tariffs and threatened a 60% import tax on Joe Rogan’s podcast. Electric vehicles made in China are already subject to a 100 percent tax when imported into the United States. Despite China’s significantly lower production costs, Chinese automakers have seen them seek local production or shelve any thoughts of entering the American market.
Mexico’s auto industry exported over $64 billion in the first half of 2024. That is a significant contribution to the country’s income, with a GDP of $1.789 trillion in 2023. Mexico imported auto products worth just over $41 billion, representing a positive trade balance of nearly $23 billion, with the US making the largest contribution and growing. That’s the kind of deficit the president-elect would like to restore to the U.S.’s benefit. Trump has not yet mentioned canceling the USMCA. There was one joint review already planned for 2026But this is just the beginning of the ten-year deadline for the expiration of the USMCA, and Trump is more focused on restricting Chinese companies than German companies that produce in Mexico. Still, he could also try to restrict imports from other countries, including Mexico.
BMW already has its massive US manufacturing plant in Spartanburg, North Carolina, so in theory it could move some production there – although that won’t be easy, given how much work (and money) went into preparing the factory in Mexico has flowed electric vehicles. A BMW spokesperson told Fortune: “Nothing will emerge at this point. It’s too early for us and we don’t want to speculate.” That seems to be the current mood, other companies are making similar statements. No one knows exactly what President-elect Trump is up to (probably including himself). Although he could renegotiate the USMCA, this will not have a direct impact on Mexico’s other trade agreements.
It could trigger an international trade war, with trade deals outside the US caught in the crossfire. But even Trump probably won’t be able to break the complicated web of global agreements in his four years as US president. Despite recent political events, BMW’s plan to establish Neue Klasse in Mexico still seems wise. This not only enables the delivery of BMW’s new electric generation to the most important markets in the USA and America. It can supply this important new range to many other countries with minimal trade barriers.