Chinese EV Companies Are Getting A Warm Welcome In Mexico

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The New York Times reports that BYD, Chery, Geely, and SAIC are rushing to open dealerships in Mexico, where their electric cars are attracting lots of customers. While they may cost more than conventional gasoline-powered cars, there are advantages that make the vehicles attractive. Mexico City has some of the worst air pollution of any world city. When it gets especially bad, some drivers are prohibited from operating their cars within city limits.

Those restrictions do not apply to electric cars, however. That helps make the BYD Dolphin Mini an attractive choice, said Daniela Alvarez, a salesperson at a BYD dealership. She listed some of the features of the car, including its advanced battery technology, rotating video display, and four airbags. But what gets customers excited is the exemption from driving restrictions on smoggy days and the lower operating costs of an EV. In Mexico City, the cost of electricity is only 30% of the cost of gasoline. “Electricity is cheaper than gas. You can make up the difference,” she said.

EV sales in Mexico are tiny at the present time — only about 2% of total sales. But they are up 40% this year compared to 2023. Chinese manufacturers are anxious to build factories in Mexico and sell their cars throughout Central and South America. They specifically think they can break the dominance of Japanese companies like Toyota in countries such as Brazil. Their ambition to expand overseas is on vivid display in Mexico and across Latin America. Ads for Chinese brands are in airports and soccer stadiums, and loom above Mexico City streets on large billboards. Chinese cars, both gasoline and electric models, are an increasingly common sight.

Chinese Car Companies Eyeing The United States

While none of the companies even so much as hints at selling cars in the United States, where tariff barriers have been erected specifically to keep them out, there is little doubt that eventually, Chinese carmakers hope to use Mexico as an on-ramp to the United States, the New York Times says. The incoming administration has suggested it may slap another 25% tariff on cars manufactured in Mexico. That would be in addition to the 100% tariff put in place by the current administration.

The fear is that low priced cars from Chinese manufacturers would do major damage to the domestic auto industry in the US, and there is every reason to believe that fear is realistic. But you don’t need a weatherman to know which way the wind blows, and if people in Texas, New Mexico, Arizona, and California find out that cars on the other side of the border cost significantly less that comparable cars in the US, the pressure to reduce or eliminate those tariffs will intensify. Millions of cars sold in America today are manufactured in Mexico. It would be difficult for the US to say “Come on in,” to some cars and “Stay out,” to others. America once had a similar fear of Japanese-made cars. Today, Toyota and Honda have an extensive network of factories, suppliers, and dealers in the United States. Time heals all wounds, as my old Irish grandmother liked to say. If there is any culture that knows how to play the long game, it is China.

20 years ago, the internet was awash in videos showing Chinese-made cars folding up like tuna fish cans during crash tests. But in recent years, China’s manufacturers have pulled even with foreign rivals in mechanical quality, analysts say, and often surpass American, Japanese, and European carmakers in battery technology, autonomous driving, and entertainment software. Chinese carmakers have clawed significant market share domestically from once-dominant companies like Volkswagen. Even Tesla, which has a large factory in Shanghai, has lost ground to BYD and other Chinese carmakers. “Before the pandemic, the rules were set down by the Western carmakers,” said Felipe Munoz, global analyst at JATO Dynamics, a research firm. “Now it’s the opposite.”

Rapid Transfer Of Technology

The auto industry has never seen anything like the current wave of Chinese brands, which have quickly overtaken Japanese companies as the world’s largest auto exporters. Chinese carmakers have made deep inroads in countries where they have local production or face few significant trade barriers. In Brazil, Chinese brands have a 9% share of car sales, up from 1% in 2019. In Thailand, they have 18% of the market, up from 5% in 2019, according to JATO.

In Mexico, Chinese brands now account for 9% of new car sales, up from effectively nothing five years ago. “They gained market share when other brands didn’t have inventory and there were long waits to get cars in Mexico,” said Guillermo Rosales Zárate, president of the Mexican Association of Automobile Distributors. In San Luis Potosí, an industrial hub 250 miles north of Mexico City, BYD models are taking customers from Toyota, said Fernando López, manager of a dealership that sells both brands from a showroom in an upscale neighborhood. The BYD Shark pickup, a $45,000 plug-in hybrid, is poaching buyers from the Toyota Tacoma, he said, while the BYD Song, a $30,000 plug-in SUV, is luring customers from the Toyota RAV4. The Chinese models cost $10,000 less than the comparable Toyota products, on average. “I don’t know if people are going to let them sell in the United States,” López said, referring to BYD, “but they can compete with any brand.”

Representatives of several Chinese carmakers declined to comment or did not respond to requests for comment from the New York Times. Jorge Vallejo, BYD’s director general for Mexico, agreed to an interview but canceled abruptly as New York Times reporters waited outside his office in Mexico City. The company’s representative declined to reschedule or make other executives available.

Western Automakers Struggle In China

China is the world’s largest car market, and the growing prowess of domestic producers is having far-reaching effects. General Motors has been losing money on its Chinese operations for several years. Last week, it said it would take a more than $5 billion hit to its profit as it restructured its operations in China. Mary Barra, the CEO of GM, acknowledged the price pressure from Chinese carmakers during an interview in October. “We’ll continue to look at smart ways to take cost out,” she said, while insisting that the company could still compete with China. Arno Antlitz, the chief financial officer of Volkswagen, noted that the industry had dealt with new competitors before, including Japanese carmakers in the 1970s and South Korean carmakers in recent decades. “We think we have a competitive setup,” he said in an interview in October. Lots of industry observers think those remarks from Barra and Antlitz are little more than whistling in the dark.

Mexico is the world’s seventh largest auto producer, just behind South Korea and Germany. Most major carmakers have factories in Mexico, including GM, Ford, Stellantis, and Volkswagen. Many of the parts used to build those cars come from Chinese companies. More that two million cars produced in Mexico are intended for the US market, according to the Mexican Automotive Industry Association.

Although US tariffs on cars made in China are high, in theory Chinese cars made in Mexico and exported north of the border would currently have to pay a maximum tariff of just 2.5%. But the United States would almost certainly put pressure on Mexico to erect barriers to Chinese automakers. Mexico’s new president, Claudia Sheinbaum, has played down talk of a BYD factory in Mexico and emphasized that relations with the United States are the government’s top priority. Mexico is “so economically tied to the US, at the end of the day this is a straightforward calculation,” said Joshua Meltzer, a senior fellow at the Brookings Institution who focuses on international economic relations. In October, the Mexican government raised the tariff on imported cars to 20% from 15%, in what was widely seen as a reaction to growing sales of Chinese vehicles.

The Takeaway

China has become a manufacturing juggernaut, largely because of its insistence that western companies wanting to manufacture in China partner with a Chinese company. That has led to a rapid transfer of technology that now allows Chinese companies to design new models and get them into production faster than any other automakers. As a result, China has the models customers want today. Tesla makes great cars, but its offerings have changed little in the past five years. Chinese competitors simply have fresher models available with the most current technology at prices that are too good to ignore.

It is too early to say that China will disrupt the entire auto manufacturing industry worldwide, but if you think that could not happen, you aren’t paying attention. The US will fuss and fume and try everything to keep Chinese cars from being sold in America, but the views expressed around the sundeck at CleanTechnica global headquarters suggest cars from Chinese companies will be on sale in the US by 2030. Check back with us on New Year’s Eve, 2029 to see how accurate our crystal ball was.