Chinese electric vehicle manufacturers have been looking beyond the US market due to tariffs. Mexico has become a hot spot for their high-tech cars, but officials in Washington are worried it could be used as a “backdoor” to the U.S. market.
Last year, China was the leading car supplier to Mexico, exporting $4.6 billion worth of vehicles to the country according to the Mexican Ministry of Economy. Even customers hesitant about EVs have been won over by affordable price tags. BYD, Tesla’s rival, sells its Dolphin Mini in Mexico for around 398,800 pesos or approximately $21,300, which is less than half the cost of the cheapest Tesla.
“The Chinese automakers came to the country very aggressively,” said Juan Carlos Baker, former Mexican deputy minister for international trade. “They offer good promotions and it’s a great product that sells at a reasonable price.”
Some Chinese EV manufacturers, including BYD, are looking to establish a foothold in North America by exploring factory sites in the Mexican states of Durango, Jalisco, and Nuevo Leon. The foreign investment would be an economic boost for Mexico, with BYD claiming that a plant there could create around 10,000 jobs.
However, US officials are concerned that this could be part of a larger strategy by Chinese automakers to circumvent trade restrictions and enter the American market.
“Mexico is an attractive production platform, not only for Chinese companies but also for other companies due to its free trade access to the American market,” said Scott Paul, president of the Alliance for American Manufacturing. “And it can do something that in trade terms is called circumvention.”
This free trade access is part of the United States-Mexico-Canada Agreement (USMCA), a revised version of the North American Free Trade Agreement (NAFTA) that removed tariffs on many goods traded between North American countries starting in 2018. Under the agreement, if a foreign auto company manufactures in either Canada or Mexico and can prove that the building materials are sourced locally, the goods can be exported to the US virtually duty-free.
“We’ve seen China do this in other types of manufacturing as well, from appliances to auto parts to steel,” said Paul. “For more than a decade now, China and the United States have been playing a high-stakes game of whack-a-mole when it comes to trade policy tariffs.”
While meeting USMCA requirements is difficult, the potential scenario terrifies US lawmakers and auto companies.
“If Chinese EV makers are able to set up in Mexico, they would definitely pose an imminent threat to American automakers, mainly because their costs would be lower,” said Michael Dunne, CEO of Dunne Insights.
In May, President Joe Biden announced a 100% tariff on Chinese EVs.
“We [the US] are just starting to scale up our EV industry, so it’s what I call an ‘infant industry,'” said Paul. “And like any infant, it’s at a very delicate time in terms of development and has to be massively protected.”
Experts say pressure from the US leaves Mexico in a difficult position of maintaining its crucial relationship with America without being overly friendly to Chinese investment.
CNBC reached out to the Mexican government as well as Chinese automakers BYD, SAIC, and Chery. None responded to our request for comment.
Source: CNBC
