The iconic BMW 3 Series, once the flagship of premium sedans, is now in an unexpected spotlight: a victim of escalating trade tariffs. Alongside the Audi Q5 SUV, the German luxury car finds itself burdened with a hefty 27.5% import tax, driving up costs and sending ripples through the auto industry.
A Tariff Twist for the German Icon
For decades, the BMW 3 Series symbolized sporty sophistication, with its sleek design and dynamic performance capturing drivers worldwide. However, a recent wave of tariffs imposed by the Trump administration has significantly altered its market appeal. Previously subject to a modest 2.5% import duty, the 3 Series is now hit with a 25% tariff due to its Mexican production, bringing the total tax to 27.5%.
BMW dealers, such as Tom DeFelice III of Circle BMW in Eatontown, New Jersey, are temporarily relieved by the automaker’s decision to absorb the added cost until May 1. However, the future beyond that remains uncertain.
“It gives us tremendous certainty for the next two months,” DeFelice said. “Who knows what happens after that?”
Factory Fallout and Supply Chain Shifts
In 2019, BMW invested over $1 billion to build a plant in Mexico, strategically positioning itself to meet North American demand. Yet, under the U.S.-Mexico-Canada Agreement (USMCA), vehicles must contain a higher percentage of North American-made parts to qualify for tariff exemptions. The 3 Series, despite its production in Mexico, falls short of these rules, making it vulnerable to the 25% duty.
While BMW could theoretically shift production to its Spartanburg, South Carolina, plant, industry analysts like Stephen Reitman from Bernstein suggest the facility lacks the capacity to absorb sedan production. Importing from Europe, where some 3 Series models are still made, is another option—but that move carries its own risks. Trump has signaled the possibility of expanding tariffs on EU-made vehicles, further complicating the company’s logistics.
A $1 Billion Hit to BMW’s Bottom Line
The financial fallout is severe. BMW announced last week that the tariffs will slash its 2025 earnings by approximately $1 billion. In response, the company is considering expanding its North American manufacturing footprint to comply with free-trade regulations.
Audi is facing a similar challenge. The Audi Q5 SUV, also produced in Mexico, is hit with the same 27.5% tariff. The model, which accounts for nearly one-third of Audi’s U.S. sales, now carries a significantly higher import cost, potentially squeezing dealer margins and consumer demand.
Luxury Brands Take the Brunt
Upscale automakers are shouldering a disproportionate burden of the tariff war. Chinese-made luxury vehicles, such as Volvo’s S90 sedan and EX30 electric car, face a combined 120% tariff, including a pre-existing 100% tax on Chinese EVs imposed by the Biden administration.
Meanwhile, Ford and GM, which have relied on Chinese imports for their premium brands, face their own challenges. Ford’s Lincoln Nautilus SUV, made in China, represents about one-third of the brand’s recent U.S. sales, while GM’s Buick Envision accounts for roughly a quarter. Though GM claims the tariffs have minimal financial impact on its overall business, the long-term outlook remains uncertain.
What Lies Ahead?
As the tariff battle intensifies, the luxury auto sector faces mounting pressures. While BMW and Audi are absorbing the extra costs for now, consumers could eventually bear the brunt through higher sticker prices.
For now, dealers like DeFelice are taking it one day at a time, closely watching policy changes that could reshape the industry landscape.
“The intricacies of the BMW supply chain — I’ve never been more aware of it than now,” DeFelice admitted.
With trade tensions still simmering, the road ahead for luxury automakers remains anything but smooth.
