By Adrienne Roberts 

Volkswagen AG will spend $340 million to manufacture a new sport-utility vehicle at a Tennessee assembly plant. The move is the latest in a string of investments planned by foreign auto makers in American factories that could help offset the pain of a potential trade war.

The plan -- announced Monday at an event in Chattanooga and earlier reported by the Wall Street Journal -- is part of the German auto maker's increased bet on SUVs, a strategy VW hopes will approximately double its U.S. market share to 5% in coming years. While a dominant player on the global stage, Volkswagen has been slow to embrace trends that Americans follow and has long trailed Japanese and Korean car companies in the U.S.

Volkswagen previously invested $900 million in the plant to build the Atlas, a seven-seat SUV designed for the U.S. market. The auto maker has been working to recover from a costly diesel-emissions scandal that hit in 2015 and forced Volkswagen executives to draw up a new strategy.

The company's deeper U.S. commitment comes amid intense political scrutiny on where auto makers build cars that are sold to U.S. buyers. President Donald Trump has criticized car companies that import vehicles into the U.S. and face little penalty, while praising several auto makers that have made U.S. investment commitments within the past 15 months.

Mr. Trump's move to raise tariffs on imported steel and aluminum could present a challenge for foreign car companies that rely heavily on non-U.S. materials to make their cars and SUVs. By locating more production in the U.S. or the North American Free Trade Agreement zone, auto makers typically boost their use of steel and aluminum coming from producers based in the U.S. or Nafta.

Swedish auto maker Volvo said in September it would more than double its investment in its first U.S. plant to $1.1 billion to build its XC90 SUV. Around the same time, Daimler AG said it would spend $1 billion to start production of a fully electric SUV at its Alabama manufacturing operations.

Japanese auto makers Toyota Motor Corp. and Mazda Motor Corp. are even building a new plant in the U.S. to add more capacity, announcing in January a $1.6 billion plant in Alabama that Mazda will use to build a new crossover SUV.

These investments are as routine as they are politically expedient, as factories need to be modernized and vehicle platforms change. Volkswagen, like many auto makers, uses the same engineering platform for many of its vehicles, and its new SUV will be built on the same platform and line as the seven-seat Atlas that is available in dealerships now.

Production of the Atlas began in December 2016 at the Tennessee plant, which has produced Passat sedans since opening earlier in the decade.

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com

(END) Dow Jones Newswires

March 19, 2018 15:28 ET (19:28 GMT)

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