Blocked from US tariffs, Chinese electric vehicle makers have looked elsewhere to sell their high-tech cars. But as Mexico has emerged as a hot spot for Chinese electric vehicles, Washington officials worry that the country could be used as a “backdoor” into the US market.
Last year, China was Mexico’s top auto supplier, exporting $4.6 billion worth of vehicles to the country, according to Mexico’s Economy Ministry. Even customers wary of EVs have been won over by the affordability. Tesla Rival BYD sells its Dolphin Mini in Mexico for about 398,800 pesos, or about $21,300, a little more than half the price of the cheaper Tesla.
“Chinese automakers came into the country very aggressively,” said Juan Carlos Baker, Mexico’s former undersecretary for international trade. “They have really good deals. It’s a good product that sells at a very reasonable price.”
Some Chinese electric vehicle makers, including BYD, are seeking further footholds in North America by exploring factories in the Mexican states of Durango, Jalisco and Nuevo Leon. Foreign investment would be an economic boost for Mexico. BYD claimed a factory there would create around 10,000 jobs.
But US officials worry that this could be part of a wider strategy by Chinese carmakers to circumvent trade restrictions and enter the US market.
“Mexico is an attractive manufacturing platform, not only for Chinese companies, but for other companies as well, in part because of that free trade access it has to the American market,” said Scott Paul, president of the Alliance for American Manufacturing. “And it can do what in trade terms is called circumvention.”
This free trade access is part of the United States-Mexico-Canada Agreement (USMCA), a revised iteration of the North American Free Trade Agreement (NAFTA) that has eliminated tariffs on many goods traded between North American countries since 2018 .agreement, if a foreign car company manufactures in either Canada or Mexico and can prove that the building materials come from the local market, the goods can be exported to the US almost duty-free.
“We’ve seen China do this in other types of manufacturing as well, from appliances to auto parts to steel,” Paul said. “For more than a decade now, China and the United States have been playing a high-stakes game 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 locate in Mexico, they would certainly pose an immediate threat to US automakers, if for no other reason than that their costs would be lower,” said Michael Dunne, CEO of Dunne Insights.
In May, President Joe Biden announced 100 percent tariffs on Chinese electric vehicles.
“We [the U.S.] they’re just starting to expand our EV industry, so it’s what I call an “infant industry,” Paul said. “And like any infant, it’s at a very sensitive time in terms of development and needs to be massively protected.”
Experts say pressure from the US leaves Mexico in a difficult position to maintain its critical relationship with America without being overly friendly to Chinese investment.
CNBC contacted the Mexican government, as well as Chinese automakers BYD, SAIC and Chery. None responded to our request for comment.
Watch the video to learn more about how Mexico has become a hot spot for Chinese auto companies and how the next administration may affect EV trade policies.
