The decision underscores Mexico's increasing importance as a car manufacturing hub following the recent announcement of Daimler and Nissan establishing a joint venture at Aguascalientes.
The BMW plant will begin production in 2019 with most of the planned capacity of 150,000 units being exported to the United States. There is no official word on what vehicles the plant will build but some kind of compact car programme is considered the most likely.
The BMW Group has maintained good relations with Mexican suppliers for many years and purchased products worth $1.6bn locally last year.
The country's position as a member of the NAFTA trading group was key to BMW's decision to make the investment in the new plant, as was the country's membership of other free trade agreements, including the country's relationship with the European Union and the MERCOSUR member states, which include Argentina, Brazil, Paraguay, Uruguay, and Venezuela and Bolivia.
Source: IHS Automotive