BERLIN (Reuters) - Volkswagen's Audi will expand production in North America with a focus on its most important cars for the U.S. market and will make a decision on where to base itself this year, its CEO said on Friday.

The carmaker is the latest company looking to localise production near the increasingly protectionist U.S. market rather than exporting from Europe and will either build a new facility or produce at an existing Volkswagen Group plant, Gernot Doellner told Reuters.

Audi, which has one plant in Mexico, has mulled bringing more production to North America since 2023, spurred by tax incentives offered under the Inflation Reduction Act passed by former U.S. president Joe Biden.

Now, President Donald Trump's threat to impose a tariff of around 25% on all car imports has created a fresh incentive, leading Audi's Doellner to set out a specific timeframe for the company's plan for the first time.

VW CFO Arno Antlitz told Reuters in January that the group, among the most exposed to tariffs because of its large Mexico site and its battery plant under construction in Canada, planned to produce more in the United States.

"We have various options: We could go into existing Volkswagen Group plants or we could build up additional capacity," Audi CEO Doellner, who also sits on Volkswagen's management board, told Reuters.

"We are open to solutions and are evaluating the various options. We will make a decision this year," he added, declining to specify whether the site would be in the United States.

LONG-TERM STRATEGY

As companies are eyeing U.S. expansion, EU officials are in intense talks to avert new tariffs and reduce trade barriers.

The EU has a 10% tariff on passenger cars, four times the rate of the U.S. passenger car tariff of 2.5%, though the U.S. has a much higher 25% tariff on pickup trucks.

The Volkswagen Group has one plant in Tennessee producing the electric ID.4 and two popular SUVs. Its Scout subsidiary is building a second factory, due to begin production in late 2026.

In Puebla, Mexico, Audi already produces the Q5 SUV and announced last June that it would build another EV in the region, where Volkswagen Passenger Cars also makes the Jetta, Tiguan and Taos.

But imports from Mexico and Canada may soon be hit with another 25% tariff, leaving production in the U.S. as the only tariff-free option.

Carmakers with larger U.S. factories that export some of their cars, like BMW, are less worried about the tariffs as they could reshuffle production to create more space to produce cars for sale locally.

Doellner declined to say which models the new site would make, stating only that the focus would be on electric vehicles and SUVs.

Audi sold just under 197,000 vehicles in the U.S. last year, 11% of total sales.The CEO emphasised that plans to localise production had been underway well before Trump took office.

"We have a long-term strategy oriented towards the market and customer needs, rather than short-term changes," he said.