Audi to Erect Factory in Mexico

Volkswagen AG's Audi unit says it will build an assembly plant in Mexico that will begin producing an unspecified crossover vehicle in 2016 for markets worldwide.

The company plans to select the specific location for the factory, its first in North America, later this year.

Audi did not disclose details of the project. But Mexico's Economy Minister Bruno Ferrari tells the Financial Times that Audi will invest $2 billion (€1.5 billion) in the facility. Other news reports citing anonymous sources say the plant will have annual capacity to make 150,000 Q5 compact crossovers.

Adding capacity in Mexico will help Audi reach its target of selling 2 million units per year by 2020, including 200,000 units in the U.S. The brand boosted American sales 16% year over year to 117,600 vehicles in 2011 but says its potential for a similar increase this year is constrained by tight supplies of key models such as the Q5.

The plant in Mexico like parent VW's facilities in Mexico and the U.S. also would reduce the company's exposure to the strong euro, which has hurt its sales and profits in the U.S.

Audi says it chose Mexico because of its good infrastructure, competitive costs and free trade agreements. Analysts note that Mexico-built vehicles exported to the European Union are exempt from the 10% tariff levied on American-made cars.