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Shut out by tariffs, Chinese electric-car makers have been looking elsewhere to sell their high-tech vehicles. But Mexico has emerged as a hotspot for Chinese-made electric vehicles, raising concerns in Washington that it could be used as a back door to the U.S. market.
China was Mexico’s largest auto supplier last year, exporting $4.6 billion worth of vehicles to the country, according to Mexico’s Economy Ministry, and even customers wary of EVs are being lured by affordable prices. Tesla Rival BYD sells the Dolphin Mini in Mexico for about 398,800 pesos ($21,300), just over half the price of the cheapest Tesla.
“Chinese automakers have been very aggressive in Mexico,” said Juan Carlos Baker, a former Mexican deputy minister of international trade. “They have a very good promotion. They have good quality products that they can sell at very reasonable prices.”
Several Chinese EV makers, including BYD, are exploring locations in the Mexican states of Durango, Jalisco and Nuevo Leon to further their foothold in North America. Foreign investment would boost Mexico’s economy, and BYD claims that building a factory in Mexico would create around 10,000 jobs.
But U.S. officials are concerned that this could be part of a larger strategy by Chinese automakers to circumvent trade restrictions and enter the U.S. market.
“Mexico is an attractive production platform not just for Chinese companies but for others, in part because it has free trade links to the U.S. market,” said Scott Paul, president of the Federation of American Manufacturing, “and it can engage in what’s known in trade parlance as circumvention.”
This free trade access is part of the United States-Mexico-Canada Agreement (USMCA), an updated version of the North American Free Trade Agreement (NAFTA), which has eliminated tariffs on many items traded between North American countries since 2018. Under the agreement, foreign car companies can export goods to the U.S. virtually duty-free if they can prove they were manufactured in Canada or Mexico and building materials were sourced locally.
“China has done similar things in other manufacturing sectors, from consumer electronics to auto parts to steel,” Paul said. “When it comes to trade policy tariffs, China and the U.S. have been playing a dangerous game of whack-a-mole for over a decade.”
While meeting the requirements of the USMCA will be difficult, the potential scenarios are worrying U.S. lawmakers and auto companies.
“if [Chinese EV makers] “If they can set up shop in Mexico, it certainly poses an immediate threat to U.S. automakers simply because of the lower costs,” said Michael Dunn, CEO of Dunn Insights.
In May, President Joe Biden announced a 100% tariff on Chinese-made EVs.
“we [the U.S.] “I call the EV industry a ‘baby industry’ because it’s just starting to scale,” Paul says, “and like any baby industry, it’s at a very delicate time in its development and needs to be heavily protected.”
Experts say U.S. pressure has put Mexico in the tricky position of maintaining its vital ties with the United States without becoming overly friendly to Chinese investment.
CNBC reached out to the Mexican government and Chinese automakers BYD, SAIC and Chery, but none of them responded to requests for comment.
Watch the video To learn more about how Mexico became a hotspot for Chinese auto companies and how the next administration may affect EV trade policy.
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