Chinese Automakers Make Strides in Mexico, Setting Their Sights on the U.S. Market

Chinese automakers are making significant inroads in Mexico as part of a broader strategy to expand their presence in global markets. Companies such as BYD, Chery, Geely, and SAIC are setting up dealerships and exploring manufacturing opportunities in Mexico, the New York Times reports.

While these efforts do not currently include direct sales to the United States due to steep tariffs, industry analysts believe that Mexico could eventually become a key staging ground for entry into the US market.

In Mexico City’s Iztapalapa district, a modest car lot is home to a BYD dealership that sells cars as soon as they arrive from China. Among the dealership’s best sellers is the Dolphin Mini, an electric compact car priced at approximately $18,000 — significantly cheaper than the lowest-priced electric vehicle in the US. The dealership is just one of dozens that Chinese carmakers have established in Mexico, reflecting a rapid rise in the presence of Chinese brands.

According to Guillermo Rosales Zárate, president of the Mexican Association of Automobile Distributors, Chinese automakers capitalized on supply chain disruptions during the COVID-19 pandemic. While other brands struggled with inventory shortages, Chinese companies seized the opportunity to capture market share. In 2023, Chinese car brands accounted for 9% of new car sales in Mexico, up from nearly zero five years ago.

Mexico’s established role as a global automotive hub makes it an appealing location for Chinese carmakers. The country is the world’s seventh-largest auto producer, with major companies like General Motors, Ford, Stellantis, and Volkswagen operating factories there. These companies rely on Mexico’s access to the US market through the United States-Mexico-Canada Agreement (USMCA), which offers favorable tariffs for cars assembled in Mexico.

Currently, Chinese automakers like BYD are not exporting vehicles to the US because tariffs on cars made in China effectively double their price. However, vehicles assembled in Mexico would face far lower tariffs — just 2.5% under existing trade rules. While no Chinese carmakers have officially announced plans to build factories in Mexico, reports suggest that companies like BYD are scouting potential sites.

Despite the potential for US market entry, Chinese carmakers face significant obstacles. One of the largest hurdles is regulatory approval. Cars sold in the US must meet stringent safety and emissions standards, and Chinese brands would need to obtain certification before selling their vehicles north of the border. Additionally, Chinese cars imported via Mexico could face political resistance.

Both former President Donald Trump and current President Joe Biden have sought to protect US automotive jobs by curbing the entry of Chinese cars into the domestic market. Biden’s administration has offered subsidies to support US-based battery and electric vehicle production, while Trump threatened to impose tariffs on Mexican exports, including cars. Given Mexico’s close economic ties with the US, it is likely that Mexican authorities will prioritize maintaining good trade relations with Washington.

Mexico’s newly elected president, Claudia Sheinbaum, has also downplayed the possibility of BYD establishing a factory in the country. Her administration has emphasized that maintaining strong economic ties with the US is a priority. Additionally, in October 2023, Mexico raised tariffs on imported cars from 15% to 20%, a move widely seen as an effort to contain the rise of Chinese car imports.

Chinese carmakers have become formidable competitors on the global stage. Once criticized for poor quality, Chinese automakers have made significant technological advances, particularly in electric vehicles (EVs) and battery technology. Companies like BYD have surpassed Japanese, European, and even US manufacturers in battery technology, infotainment systems, and autonomous driving capabilities.

The shift in market dynamics is evident not only in Mexico but also in Brazil, Thailand, and Africa, where Chinese automakers have rapidly gained market share. In Brazil, for instance, Chinese brands now control 9% of the car market, up from 1% in 2019. Similarly, in Thailand, Chinese automakers hold an 18% market share, a dramatic increase from 5% in 2019.

If Chinese automakers establish manufacturing operations in Mexico, the implications for the U.S. market could be profound. Consumers may question why affordable electric vehicles like BYD’s Dolphin Mini — available in Mexico for $18,000 — are not accessible in the US With electric vehicle adoption accelerating and EVs expected to replace gasoline-powered cars in the long term, the US could face increased pressure to allow imports of affordable Chinese electric vehicles.

US automakers are already feeling the impact of Chinese competition. General Motors recently announced a $5 billion write-down on its operations in China, as local competitors have eaten into its market share. CEO Mary Barra acknowledged the intense price pressure from Chinese companies, but she expressed confidence that GM could remain competitive.

Volkswagen’s Chief Financial Officer, Arno Antlitz, compared the rise of Chinese automakers to the emergence of Japanese and South Korean carmakers in previous decades. He noted that the industry has weathered similar disruptions in the past. However, experts argue that the Chinese wave poses an unprecedented challenge, given the rapid pace of technological development in electric vehicles and the scale of China’s production capacity.

The potential entry of Chinese electric vehicles into the US could be further complicated by the growing influence of Tesla CEO Elon Musk. As a prominent supporter of former President Trump, Musk could influence US policy on China and automotive imports. Tesla itself manufactures electric vehicles in Shanghai, but it faces stiff competition from Chinese brands like BYD, which now outsell Tesla in China.

Chinese automakers are poised to continue their global expansion, with Mexico playing a central role. While tariffs and political resistance currently bar direct entry into the US market, Mexico’s strategic location and trade agreements position it as a potential launching pad for Chinese brands.

The question is whether US policymakers will continue to block the entry of affordable electric vehicles like the BYD Dolphin Mini, especially as American consumers seek budget-friendly EV options. If Chinese automakers establish manufacturing plants in Mexico, the pressure on US regulators and politicians to permit the sale of these vehicles could intensify.