(Corrects spelling of name to Erik Smith, from Eric Smith, in paragraph 8)

By Abhirup Roy and Marie Mannes

LAS VEGAS (Reuters) -Sweden's Volvo Group is proceeding with its planned $700-million heavy-truck factory in Monterrey, Mexico, CEO Martin Lundstedt told Reuters on Wednesday, even as President-elect Donald Trump threatens to impose U.S. tariffs on imports of vehicles and other goods.

The maker of Volvo and Mack semi-trucks has targeted growth in North America, which accounts for about 30% of company revenue, as a strategic priority and expects the plant to start operations in 2026. It expects the factory to deliver vehicles to the United States, Mexico and Canada, as well as to Latin America. 

Trump has said that immediately after his Jan. 20 inauguration, he will sign all necessary documents to begin charging a 25% tariff on imports from Mexico and Canada unless those countries clamp down on illegal immigration and fentanyl trafficking.

The Mexico project is at an "early stage that is continuing," Lundstedt said in a Reuters NEXT Newsmaker interview on the sidelines of CES 2025, an annual tech conference in Las Vegas. He said Volvo has options to use the plant for sales outside the United States.

"This is not a replacement of our American facilities," he said.

Depending on what happens with U.S. tariffs, Volvo's Mexico factory may or may not send trucks to the U.S., he added. 

Volvo's U.S. factories currently make 100% of the trucks it sells in the United States. The company has been investing in plants in Virginia, Maryland and Pennsylvania to expand that capacity, Lundstedt said.

Volvo, Daimler Trucks North America, PACCAR and TRATON supply nearly all of the heavy-duty trucks in North America, said Erik Smith, a director in the automotive and industrial practice at AlixPartners.

Of those, Volvo is the only one without a footprint in Mexico, "which is likely why they are looking at establishing one," Smith said.

Trump's tariff proposals have sent a shockwave through the auto manufacturing sector because a swath of passenger car makers, including BMW, Toyota and General Motors, have invested in factories in Mexico to take advantage of lower labor costs and business-friendly policies.

Lundstedt also said Volvo expects high-volume production at a planned battery plant in Sweden to begin a couple of years later than the original target of 2029-2030.

Volvo had said in September it would delay construction of the plant by one or two years and said at the time it was uncertain if this would affect the start of manufacturing.

Volvo wants to be at the forefront of green investments, including in zero-emissions trucking, but is refining its strategy to adjust for market factors, Lundstedt said.

That is because it does not want to be "fighting all the windmills alone, like Don Quixote and Sancho Panza," he said, referring to fictional characters from the famous novel.