Chinese EV Factories Planned for Mexico

China’s electric vehicles market is a dominant force in the industry. But plans to open Chinese EV factories in Mexico have recently produced shockwaves for many involved. 

Mexico, too, stands as a dominant player in the automotive industry – and increasingly so in EVs. But while many have seen these two countries as competitors, China is willing to make nice to gain better access to the US market. 

It’s easy to understand why China considers the Latin American country such fertile ground for expansion. Mexico has a lot to offer the automotive industry at large. But the potential partnership in the EV space has nevertheless caused surprise for many and concerns for some.

The Chinese EV Factories

China has long since been the reining leader in global production of electric vehicles and the lithium-ion batteries that run them. For 2023, their total market value is expected to be around $260 billion USD. And in five years, it is expected to more than double as world demand increases. Overcapacity has allowed the Asian giant to produce electric vehicles at substantially lower rates than US-based competitors.

However, the country is mired in a trade war with the United States, among other ongoing manufacturing woes. Declining populations and a swiftly rising cost of labor have made China less and less attractive for manufacturing in general. But the Trump-era tariffs have made even Chinese companies increasingly interested in finding creative ways to supply the US market from elsewhere to maintain their industry dominance.

This month, unnamed sources from the Financial Times reported that at least three of China’s largest electric vehicle companies are planning to build factories in Mexico. These three companies comprise the lion’s share of China’s vehicles output, including:

• MG, planning a $2 billion car plant
• BYD, Tesla’s Warren Buffet-backed rival
• Chery (known as Chirey in Mexico)
• An unnamed battery company, planning a $12 billion plant

No details have emerged yet about when or where these Chinese EV factories will be built. The plans are still in the investment and negotiation stage. However, US officials have already expressed concerns about the move.

Concerns About China’s Investment in Mexico

Over the past year, the United States has taken measures to protect the US EV industry from Chinese competition. Both the “Inflation Reduction Act” and new rules from the White House this month have aimed to make it harder for EVs made with Chinese parts to qualify for tax breaks.

But according to a recent report, lawmakers in the US are concerned that China’s potential investment in Mexico will create a backdoor to the US market. Through its trade agreements with Mexico, the US trades goods made in Mexico with little to no tariffs. 

And the US is a competitor in the electric vehicles market, too. China and the US have been vying for supremacy in this space for years, and there are numerous rules in place to keep China out of the US lane. However, as a favored trade nation, Mexico is an integral part of the US supply chain and trade reality. China stands to benefit substantially from its position and numerous manufacturing advantages.

Why China Wants Mexico

In some sense, Chines EV factories in Mexico were inevitable. Nearly every other country competing in the automotive industry has found Mexico a haven for its strategic manufacturing advantages. Mexico comprises one of the strongest automotive industry hubs in the world. 

Mexico currently hosts around:

• 300 R&D centers
• 50+ auto brands
• 500+ models
• 1.7 million skilled automotive workers

Mexico:

• Is the 2nd largest automotive manufacturer in the western hemisphere (7th largest in the world).
• Makes approximately 3-4 million vehicles per year (25,000+ EVs).
• Is the 6th largest manufacturer of heavy-duty cargo vehicles.
• Is the 4th largest producer of automotive parts worldwide.

Any automotive manufacturers operating in Mexico – including Chinese EV factories – may export duty free so long as their product is at least 75% made in North America. As a result, automotive investment in Mexico is rising rapidly. 

• General Motors in pouring $1 billion in new investment there.
• Ford reversed a $900 million pledge to their Ohio plant, instead increasing spending on its Mexico plants.
• Bosch of Germany recently re-committed to Mexico with another $100 million investment.
• And earlier this year, EV giant Tesla announced they are entering the Mexican market, with a $5-10 billion USD “gigafactory” being built near Monterrey to produce their “next-gen EV.”

Electric vehicle production is quickly becoming a major segment of Mexico’s automotive manufacturing portfolio. And EV manufacturing is growing there. According to some estimates, EV and hybrid auto manufacturing should increase by a sustained rate of 25% for the rest of this decade, eventually producing two thirds of Latin America’s EV output.

As China has figured out, Mexico’s lower and more stable cost of labor, 40+ trade agreements, highly integrated supplier chain, maquiladora factory system, modernized infrastructure, highly skilled workers, and proximity to the US market make this nation a powerhouse for anyone in the EV manufacturing space. These projected Chinese EV factories are likely to be only the latest addition to the scores of companies from around the world leveraging what Mexico has to offer.