Mini to dealers: Chinese tariff on EV makes 3% margin cut necessary

PALM SPRINGS, Calif. — Mini plans to debut a smaller, battery-powered version of its iconic two-door Hardtop. But the China-made EV presents a thorny problem for the brand in the U.S.

The model, built with parent BMW Group's Chinese joint venture partner, Great Wall, will carry a hefty premium given a 27.5 percent tariff levied on Chinese auto imports.

Now, Mini is turning to its U.S. dealers to help shoulder some of that import duty. The automaker is asking retailers for a roughly 3 percent cut in their profit margin. It will come out of dealers' 6 percent "trade margin," which is the difference between a vehicle's invoice and its sticker price, according to a dealer briefed on the matter.

Without this margin reduction, Mini would lose money bringing the car to the U.S., the source said.

Mini Americas boss Michael Peyton described the tariff issue as a "big deal."

"I've told the dealers we need to figure out how to make it happen," Peyton told Automotive News on the sidelines of a press event here. "It's a shared pain that we both have to endure to get through this."

Predictably, some of the brand's retailers are adamantly opposed to the factory's plan.

Mini is "posturing to erode margins," said another dealer. "The dealer body will fight it tooth and nail."

Mini is not alone in tapping into dealer profits to help pay for its electric ambitions. Mercedes-Benz last month told dealers it would reduce their profit margin by a half percent to help pay for a hefty investment in electrification.

But lowering dealer margins on the China EVs would be self-defeating for Mini, dealers said.

"If I have 10 cars that I am going to make $3,000 on selling, and I have 10 cars that have a very low margin and that customers aren't completely sold on, why am I going to work harder to make less money?" one dealer said.

Peyton underscored that discussions with the Mini National Dealer Council about a margin reduction are preliminary. Other options being considered include adjustments to the dealer bonus structure.

Meanwhile, Mini is rethinking conventional retail strategies to help sell the China-made vehicles profitably in the U.S. "We've got to be realistic about ... how could we bring the products," Peyton said.

One option: keeping a central stock of vehicles and delivering customer-ordered vehicles to stores, rather than retailers ordering and carrying inventory on their floorplan. The longer a product sits on a lot, the more factory incentive support it requires, Peyton said.

"That becomes less and less likely when almost everything is getting eaten up by the tariff situation," he said.

To skirt tariffs, Mini seeks to diversify EV production beyond China. A battery-powered version of the Countryman crossover will be built in Leipzig, Germany.

"There's already some potential to do something other than China," Peyton said.

Even though BMW operates a crossover assembly plant in Greer, S.C., Peyton ruled out EV production in the U.S. for the foreseeable future, citing the absence of a supplier base.

"Even if you were to say, 'I'm going to ship all the parts in and build in [South Carolina],' it's the same difference because I get a tariff on all those imported parts," he said.

Mini seeks to become an all-electric brand by early 2030 and roll out its last combustion-engine variant in 2025. The automaker's first serious attempt at an EV — the Cooper SE hardtop — launched in March 2020 in the U.S., where the two-door hatchback has garnered about 3,000 orders.

The planned China-made BEV, expected to launch globally in 2024, will be built on a new platform.

"We are talking about very small numbers initially," the dealer said. "Mini wants to get a foothold in the market with this product."

Not being able to bring an electric version of the hardtop to the U.S. would be "a real miss," Peyton said. "It's an iconic part of our brand," he said.

Dealers agree but say the ball is in the factory's court. "We really need that car, it would do really well," a dealer said. "But, we're certainly not going to take less of a margin."