The potential influx of cheap Chinese electric cars into the U.S. through Mexico had ruffled the feathers of American carmakers. This prompted U.S. officials to raise concerns to their Chinese counterparts about the country’s manufacturing overcapacity. They’ve also been urging Mexico to keep Chinese carmakers at bay—a measure to safeguard America’s massive homegrown car industry. The fruits of these diplomatic efforts have now led Mexico to align with the U.S. to fend off cheap Chinese EVs.
At a meeting with Chinese OEMs in January, Mexican officials said the country would refrain from granting incentives to Chinese automakers. They added that the country was suspending all future discussions with them, sources who preferred anonymity told Reuters. Mexican officials have not met any Chinese automakers since then. The Office of the United States Trade Representative (USTR) reportedly urged Mexico to restrict Chinese investments.
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U.S.-China trade tensions affect the EV industry
China has emerged as the goliath in electric vehicle manufacturing, with much of its expertise in making top-quality and affordable EVs. As its manufacturing capacity grows, U.S. auto executives fear that cheap Chinese EVs will destroy the domestic American car market. But Mexico's alignment with U.S. policy should come as a major victory for U.S. OEMs.
A USTR official said that the U.S.-Mexico-Canada Agreement (USMCA) designed to foster free trade in North America wasn’t meant to be a loophole for Chinese automakers to exploit. The news comes after representatives from Mexico’s Economy and Foreign Relations ministries traveled to Washington D.C. to meet with U.S. officials for high-level talks. The USTR did not respond to InsideEVs request for comment at the time of publication.
About 20 Chinese carmakers are already present in Mexico, including BYD which sells models like the Dolphin Mini, Yuan Plus and Han EV among several others. But these are Chinese-made imports—the country’s carmakers have yet to build a plant there. BYD is now chasing state incentives to build a local factory, even if they’re substantially lower than federal funding, according to Reuters. States like Durango in the northwest and Nuevo Leon in the northeast among others are wide-ranging incentives to Chinese carmakers.
Nuevo Leon last December approved $153 million in incentives for a Tesla plant. Despite acquiring all the required permits towards the end of 2023, Tesla’s factory in Mexico has faced some delays—CEO Elon Musk attributed the delay to the integration of advanced manufacturing tech. But construction of the Mexico Gigafactory began in March, according to local news outlet Milenio, citing comments from Nuevo Leon Governor Samuel Garcia Sepulveda.
This should ease the pressure on U.S. automakers, as the possibility of Chinese automakers circumventing tariffs has likely diminished. But its repercussions on Mexico’s domestic market and the wider Latin America remains to be seen. However, countries like Argentina, Brazil and Chile are also attractive destinations for Chinese automakers. They have welcomed them with open arms, with brands like Chery Auto already announcing a factory worth hundreds of millions of dollars in Argentina.
All said, with an industry-wide slowdown in demand for EVs and the urgency to bring affordable EVs to combat planet-warming emissions, Mexico restricting Chinese investment shouldn’t be a reason for American EV makers to let their guard down.
Contact the author: suvrat.kothari@insideevs.com
