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Audi Picks Puebla for New North American Plant

Plant will be 40 miles from existing VW factory.

by on Sep.04, 2012

The new plant will build an updated version of the Audi Q5 crossover, starting in 2016.

Audi will build a new “ground-up” assembly plant in the southern Mexican city of Puebla, a factory it will use to supply the U.S. and a number of other markets around the world.

The factory will be located near another assembly line operated by the luxury maker’s parent Volkswagen AG and used to produce vehicles including the latest VW Beetle and Jetta models.  When it goes into operation in 2016, the Audi plant will have the capacity to produce up to 150,000 vehicles annually.

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“We are proud that Audi, a leading European premium manufacturer, has chosen our country as a future production base,” said Puebla state Gov. Rafael Moreno Valle.

Audi has been debating the need for a North American plant for more than a decade.  The issue has been pressed by the maker’s rapidly expanding sales, especially in the Americas, where it long lagged behind better-known German brands BMW and Mercedes-Benz.

The huge gap between the dollar and Euro further exacerbated the issue, though exchange rates have leveled off in recent months.  The cost of producing an Audi in Europe is significantly higher than building a comparable BMW or Mercedes-Benz in North America, analysts note.

The latter two makers have steadily expanded their production capacity in the U.S. in recent years – though Mercedes is also considering a possible location in Mexico for an additional factory that could be operational by the second half of the decade.

Mexico has become one of the hottest locations in the world – outside of China – for automotive investment.  According to a Mexican government investment agency, automakers committed about $5.8 billion in new investments during just the first half of 2012.

(For more on that, Click Here.)

In April, when announcing Audi would go a then-undecided location in Mexico, CEO Rupert Stadler explained, “As an established carmaking location, Mexico offers an excellent economic basis for Audi production operations.  Mexico is one of the world’s top ten automotive locations and offers a blend of tradition and experience.”

The Audi plant will be located in San Jose Chiapa, about 40 miles from the VW facility – though they are expected to share many of the same parts suppliers and the proximity should make it easier for Audi to tap into its sibling brand’s distribution network.

Initial plans call for the Puebla plant to focus exclusively on the midsize Q5 crossover vehicle.  Building just one product is generally a no-no in today’s auto industry but Audi is apparently betting it has enough demand around the world to sustain the facility.  It is nonetheless all but certain to build in flexibility for other products.

The Q5 is one of Audi’s strongest products in the U.S., sales coming in at 25,000 last year – with volume expected to reach 30,000 for all of 2012. According to Audi officials, the maker expects that should reach 39,000, or 26% of the Puebla plant’s capacity, by the time it opens.  The Q5 will be significantly updated by the time the factory begins operations.

The maker has ambitious goals and hopes to be selling as many as 200,000 vehicles annually in the U.S. soon after the Mexican plant goes into operation.

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