July 14, 2024
Electric & Hybrid Cars

Mexico is being flooded with Chinese cars, causing concern in the U.S.

A large number of vehicles are lined up for export to Mexico at the dock in Lianyungang, China. (Getty Images)

Four years post the adoption of the United States-Mexico-Canada trade agreement (USMCA), both Mexico and the U.S. are facing a common concern: the potential dominance of cheap Chinese electric vehicles in a rapidly growing market, which could undermine regional carmakers like GM, Ford, and Tesla.

Chinese imports of EVs and plug-in hybrids have seen a significant increase of 443.9% in value during the first quarter compared to the previous year, as per data from S&P Global Market Intelligence.

Currently, approximately 1 in 10 cars sold in Mexico originate from a Chinese automaker, with seven new brands entering the market in the last year alone, according to Reuters.

“Almost overnight, we started seeing Chinese cars driving in Mexico,” said Juan Carlos Baker, Mexico’s former vice minister for foreign trade. “In terms of how frequently you see them and the aggressive marketing and sales campaigns by Chinese cars, it is quite evident.”

Despite calls to restrict Chinese EV makers in the U.S. and Mexico due to increased imports and investment, the threat of cheap Chinese EVs flooding the market was not a concern during the negotiation of the USMCA, as stated by Baker.

While no Chinese carmaker has begun manufacturing vehicles in Mexico yet, the country’s proximity to the U.S. has raised concerns in Washington, fearing that auto companies might use Mexico as a way to bypass U.S. tariffs on Chinese car imports.

With the domestic market in China maturing and sales slowing down, foreign markets have become crucial for Chinese firms. The success of Chinese auto brands in Latin America demonstrates their strategy to establish a presence in countries with numerous free trade agreements, access to resources, and a cost-effective labor force.

Mexico is following the trend of Brazil, the largest car market in Latin America, where Chinese companies like BYD (BYDDY) and Great Wall Motor (GWLLF) have already established manufacturing operations.

In Latin America, Chinese EV makers hold an 86% market share, primarily due to intense price competition.

Chinese car manufacturers’ global expansion efforts have faced resistance in developed markets, prompting lawmakers to reassess trade rules to prevent an influx of inexpensive vehicle imports.

Concerns in Europe about the market share of Chinese EVs led to an anti-subsidy investigation, resulting in the EU imposing tariffs of up to 38% on Chinese EV imports.

The recent tariff increases on Chinese EV imports announced by Biden have already influenced carmakers’ investment decisions, shifting focus away from developed markets.

Amidst these changing dynamics, a reevaluation of the USMCA has been contemplated two years before its scheduled review, with new leadership in Mexico potentially complicating the approach to addressing Chinese EVs.

Nevertheless, Baker mentioned that Chinese firms are unlikely to find a loophole to comply with the strict automotive rules of origin in the existing trade agreement, which require meeting specific criteria related to the origin of vehicles and parts.

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FAQ

1. Are Chinese electric vehicles increasingly dominating the Mexican market?

2. How are Chinese EV makers expanding their presence in Latin America?

3. What steps are lawmakers taking in developed markets to address the influx of cheap vehicle imports?

Conclusion

The influx of Chinese electric vehicles into the Mexican market and other regions is reshaping the automotive industry landscape, prompting concerns among traditional carmakers and lawmakers. As Chinese firms seek to expand globally, trade rules are being revisited to ensure a level playing field and prevent market disruptions. The future of the automotive industry will likely see continued tensions and adjustments to accommodate the changing dynamics influenced by Chinese EV manufacturers.

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