Chinese EV makers are planning factories in Mexico—and the U.S. is worried it’s a ‘back door’ to undercutting the Big 3 carmakers

According to a recent article from the MSN, Chinese EV makers are planning factories in Mexico, which has raised concerns in the United States about the possibility of Chinese EVs being exported to the US market through Mexico1. The Mexican Association of Automotive Distributors reported that Mexico’s imports of Chinese cars (both EVs and traditional ones) increased 62.6% during the first eight months of 2023 compared to the same period last year2.

Several Chinese EV makers, including BYD, Chery, and MG, are scouting locations in Mexico to build factories south of the border. This is concerning for U.S. automakers because Mexico has a free trade agreement with the U.S. and Canada (the USMCA) 12. BYD, backed by Warren Buffett’s Berkshire Hathaway, is especially formidable and is poised to overtake Tesla as the world’s biggest EV seller. It owns the entire supply chain of its EV batteries, from the raw materials to the finished battery packs, giving it a big cost advantage12.

Earlier this month, the U.S. government released new rules making it harder for vehicles with battery components made by a “foreign entity of concern” to qualify for a $7,500 tax break. This includes companies in China, Russia, Iran, or North Korea3.

According to a recent article from MSN, Chinese automakers are planning to build factories in Mexico, which has raised concerns in the United States about the possibility of Chinese EVs being exported to the US market through Mexico1. The lawmakers have warned about a “coming wave” of Chinese vehicles that will be exported from other trading partners, such as Mexico1.

The lawmakers have also expressed concerns about China’s industrial strategy to dominate the global automobile market and its EV makers gaining a backdoor to the US market through key trading partners1. They have suggested that existing tariffs on made-in-China cars should be maintained and even increased1.

It is not just Mexico that Chinese carmakers are targeting. South Korea, another country with a US free trade agreement, is also being leveraged by Chinese carmakers. Polestar, a luxury EV brand owned by China’s Geely, will manufacture its Polestar 4 SUV in 2025 at a Renault factory in Busan, South Korea, to avoid the 27.5% US tariff imposed on the made-in-China Polestar 21. Polestar also plans to build its Polestar 3 at a Volvo factory in South Carolina, which would allow it to avoid tariffs1.

The lawmakers have expressed concern about how the People’s Republic of China (PRC) is preparing to flood the United States and global markets with automobiles, particularly electric vehicles (EV), propped up by massive subsidies and long-standing localization and other discriminatory policies employed by the PRC1. Indeed, PRC automakers BYD, Chery, and SAIC Motors have already established themselves in Mexico1.

According to a recent article by The Globe and Mail, Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, expressed his concerns about Chinese firms investing in Mexico’s auto industry to circumvent tariffs. He believes that these companies have access to cheap capital, benefit from a central plan, and are part of a wider geopolitical objective to weaken the North American base1.

In June, Ford Motor executive chairman Bill Ford Jr. warned that U.S. automakers are “not quite yet ready” to compete with Chinese rivals on EVs. He stated that Chinese automakers developed EVs very quickly and in large scale, and now they are exporting them. He also mentioned that they are not yet present in the U.S., but they will come at some point, and the U.S. needs to be ready2.

According to ZoZo Go CEO Michael Dunne, whose advisory firm specializes in the Chinese EV industry, made-in-China EVs are sold in more than 100 countries, and the U.S. is the only market where they “have not yet really begun a big assault”3.

It remains to be seen what happens in Mexico’s auto industry in the years ahead, but it is clear that Chinese automakers are making significant strides in the EV market and are poised to become major players in the global automotive industry.

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