Can the U.S. Curb Chinese Production of EVs in Mexico?



Carlos Alva, José Carlos Espinosa, Diana Avalos Morales, Margaret Myers, Larry B. Pascal & Lucinda Vargas | The Dialogue

Mexico is holding back on some incentives to Chinese electric vehicle manufacturers under pressure from the United States, which is concerned about Chinese automakers seeking to avoid U.S. tariffs by producing cheap electric vehicles in Mexico for the U.S. market, Reuters reported in mid-April.

How significant is investment from Chinese electric vehicle makers in Mexico? How likely is Mexico to ramp-up incentives for Chinese automakers to invest in Mexico? How can Mexico continue to attract foreign investment from China while maintaining good relations with the United States?

Larry B. Pascal and Carlos Alva, members of the International Practice Group at Haynes and Boone:

“In recent years, the importation of Chinese vehicles to Mexico has increased considerably, primarily due to their competitive prices. For example, according to the Mexican Association of Automotive Distributors, in 2023, up to approximately 20 percent of the total new vehicles sold in Mexico were vehicles fabricated and imported from China. However, no Chinese automaker to date has opened a plant in Mexico, although Chinese automakers are reportedly scouting for manufacturing sites in Mexico. Although the increase in the popularity of Chinese vehicles in Mexico is evident, it is unclear if Mexico would grant incentives to Chinese manufacturers to establish automobile production plants in Mexico in the face of opposition from the United States, its largest trading partner. Putting aside incentives, in theory, a Chinese automaker could open a plant in Mexico without the intent to qualify for national origin treatment under the USMCA (and by implication without an immediate intent to export to the United States) and instead focus on the domestic Mexican market or those other foreign markets for which Mexico has a free trade agreement. The USMCA has stricter rules of origin than earlier free trade agreements that Mexico has with other trading partners. Mexico could also later negotiate with the United States and Canada a side agreement on the automotive sector addressing the treatment of electric vehicles, which could threaten manufacturing jobs in North America but could advance the public policy goals of reducing carbon emissions and furthering the energy transition.”

José Carlos Espinosa, head of sales at LGS International:

“Investment from Chinese electric vehicle makers in Mexico has been growing in recent years, driven by factors such as Mexico’s strategic location for export to North American markets, its skilled labor force and its existing automotive manufacturing infrastructure. However, the exact significance of this investment can vary depending on specific companies and projects. The pressure from the United States on Mexico to limit incentives to Chinese automakers reflects broader concerns about trade imbalances, intellectual property rights and competition in the automotive sector. Mexico, being a key trading partner of the United States and a participant in the USMCA, may be inclined to consider U.S. interests in its economic policies. Whether Mexico will ramp up incentives for Chinese automakers depends on a variety of factors, including diplomatic relations between Mexico, China and the United States, as well as Mexico’s own economic priorities and trade policies. If Mexico perceives that maintaining good relations with the United States is paramount, it may adjust its incentives and policies accordingly. To continue attracting foreign investment from China while maintaining good relations with the United States, Mexico could pursue several strategies: diplomatic engagement, open communication, diversification of investments, transparency and fair trade practices, emphasis on shared goals, and investment incentives based on criteria. Overall, navigating the complex dynamics between China, Mexico and the United States requires a nuanced approach that balances economic interests, diplomatic relations and strategic considerations. By adopting a proactive and pragmatic approach, Mexico can continue to attract foreign investment while maintaining good relations with its key trading partners.”

Margaret Myers, director of the Asia & Latin America Program at the Inter-American Dialogue:

“The nearshoring trend has been largely China-led, as it turns out, as Chinese companies seek access to Mexico’s well-established industrial base in pursuit of supply chain diversification and access to the North American market. But investment in Mexico has been on the rise since around 2015, consistent with an intensive Chinese focus on investment and trade in sectors that China’s leadership has deemed fundamental to China’s own economic upgrading. Electric vehicles are an important part of this story, certainly, but so are many other forms of high-end manufacturing and related trade and investment. In general, Chinese automakers and other companies are looking for opportunities wherever they can find them, aiming to offload excess capacity and, simultaneously, establish dominant market positions. Chinese automakers and parts manufacturers in Mexico are interested in leveraging the USMCA, in many cases, but are also interested in Mexico’s market. Indeed, BYD aims to produce primarily for the Mexican market, according to its spokespeople. And it is well-positioned to do so, having benefited over the years from Chinese industrial policy, including Beijing’s new emphasis on ‘high quality productive forces,’ with a focus on EVs, renewable energy and other frontier industry competitiveness. For the United States, the problem is bigger than Chinese efforts to take advantage of USMCA provisions. Whether Mexico provides incentives for Chinese companies or not, Chinese companies are well-positioned to carve out increasingly dominant positions in all sorts of high-end industries. Mexico is an important destination for many, as is much of the rest of the Latin American region.” 

Lucinda Vargas, associate director of the Center for Border Economic Development at New Mexico State University:

“Mexico is currently under a tidal wave of Chinese direct investment. The Chinese presence in the country spans infrastructure projects, mega-size industrial parks and manufacturing plants in various industries, principally automotive. It has no presence yet in electric vehicle production. China’s BYD, which has surpassed Tesla as the world’s top-selling electric carmaker, has set its sights on Mexico with a stated purpose of servicing the Mexican market. Could its Mexican production platform eventually contemplate generating an electric vehicle for the U.S. market under the USMCA? Yes, but the rules may change. USMCA rules stipulate a 75 percent North American content on automotive products for duty-free U.S. entry. In the USMCA’s review in 2026, stricter rules could be entertained to stipulate that of the remaining 25 percent of content in an automotive product, zero percent can be associated with a ‘foreign entity of concern,’ that is, China as labeled by the U.S. government. Even if Mexican federal authorities have become cautious about stimulating Chinese investment to assuage U.S. concerns, individual states in Mexico seem eager to be the beneficiaries of such investment with incentives in hand. Yet, Mexico does not need to court China with incentives. Its key draw for Chinese investors, indeed for investors from any country, is its next-door proximity to the United States, combined with its USMCA partner status, two anchors that enable tapping one of the world’s largest markets. No one can strip the first, but the United States may force Mexico’s hand on the second: choose between it and China to continue in the USMCA partnership.”

Diana Avalos Morales, executive director of the Mexican Association for Electric Vehicle Promotion:

“Investments from Chinese electric vehicle makers in Mexico have been significant, with more than 15 companies present in the market. Some of them have announced their intention of establishing production facilities in the country. However, Mexico is likely to be careful of ramping up incentives for Chinese automakers, balancing its economic interests with its relationship with the United States. To continue attracting investment from China while maintaining a fair trade relationship within the USMCA, Mexico should pursue a transparent regulatory framework to ensure unfair practices are avoided. This approach could mitigate concerns about tariff evasions while fostering economic partnerships that are beneficial for all countries involved. Mexico is keen on further developing its national supply chain to transform the country from a very vehicle assembly-oriented manpower to a country that supplies complete products to the market. The country should invest enough in science and technology to deliver the goal of having automotive national brands competing in the international markets. Regarding incentives facilitated by the Mexican government for EV imports, we understand these benefit all brands from all countries, so we can’t identify any that only target Chinese companies.”

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