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* Major Japanese carmakers produce one third of their vehicles in Mexico
* Toyota, Nissan fall 2-3%; Kia, Hyundai off 4.2%, 1.1% respectively
* GM is the biggest car producer and exporter in Mexico
* Nissan makes the most vehicles in Mexico among Japanese carmakers
* Ford, GM, VW, Fiat Chrysler also manufacture in Mexico (Adds more automakers)
TOKYO, May 31 (Reuters) - Shares in Asia's major automakers and their suppliers sank on Friday after U.S. President Donald Trump threatened to slap tariffs on Mexican imports next month, potentially affecting vehicles made in Mexico and sold north of the border.
Trump, incensed by a surge of illegal immigrants across the southern border, said late on Thursday a tariff of 5% would be imposed on all goods coming from Mexico, increasing gradually each month until reaching 25% on Oct. 1, unless Mexico takes immediate action.
The move is likely to hit a broad range of industries, but the auto industry looks particularly vulnerable as many global carmakers manufacture vehicles in Mexico to take advantage of its cheap labour, trade deals and its proximity to the United States, the world's second-largest auto market.
"Margins are so thin in the U.S. market right now that there's no way that any automaker is not going to pass on these tariffs to their customers," said Janet Lewis, an analyst at Macquarie Securities.
"The unknown factor is the impact on suppliers, as components can move back and forth between Mexico, the United States and Canada up to 20 times before they make their way into assembled cars."
General Motors Co is the biggest car producer and exporter in Mexico, and its global peers Ford Motor Co, Volkswagen AG and Fiat Chrysler Automobiles NV also have manufacturing presence there.
In Japan, shares in Toyota Motor Corp fell 2% while Nissan Motor Co and Honda Motor Co fell about 3%. Mazda Motor Co took a bigger hit, tumbling nearly 7%. All four automakers operate vehicle assembly plants in Mexico, producing roughly one-third of the vehicles made in the country.
In South Korea, Hyundai Motor Co and affiliate Kia Motors Corp fell 1.1% and 4.2% respectively. Hyundai Wia Corp, which supplies auto components to the duo, fell 5.2%.
"Although we have to wait and see whether the U.S. tariffs plan will be really implemented, this is negatively affecting investor sentiment," said Chang Moon-su, an analyst at Hyundai Motor Securities in Seoul.
Japan's top automakers and their suppliers, including Denso Corp and Aisin Seiko Co, for decades have been building vehicles in Mexico not only for the domestic market, but also to export to the United States, taking advantage of previous free-trade agreements between the two countries.
Among them, Nissan produces the most vehicles in Mexico, and its exports to the United States account for roughly one-quarter of the firm's total vehicle sales in the country, industry experts say. Its Sentra and Versa models are made in Mexico for the U.S. market.
Smaller rival Mazda exports about 30% of its Mexico-produced cars to the United States, while the figure for Toyota, which has been expanding U.S. production of pick-up trucks, and Honda is less than 10% each.
Japanese automakers together produced about 1.25 million vehicles in Mexico in 2018.
But production in Mexico is dwarfed by the number of cars Japanese automakers produce in the United States, their single largest market, where the top three manufacturers alone produce roughly 4 million vehicles each year.
(Reporting by Naomi Tajitsu; Additional reporting by Hayoung Choi in Seoul; Editing by Stephen Coates and Christopher Cushing)