The US government has expressed concern over the “imminent wave” of Chinese players flooding Mexico with electric vehicle battery projects, Financial Times reports, citing “several people with knowledge of the talks.” It apparently arose amid three of China’s leading electric automakers’ plans to set up local production in the country.
Chinese companies seeking to invest in Mexican factories
The report outlined that BYD, MG, and Chery are planning to build electric vehicle battery factories in Mexico. These three companies have been negotiating with Mexican officials to find ideal locations this year, unnamed sources revealed.
MG reportedly aims to invest $2 billion in a new factory. Chinese industry leader BYD continuously boosts its investments of hundreds of millions for a Mexican factory.
In addition, a yet-to-be-named Chinese player aims to develop a $12 billion battery factory, one of the sources stated.
US’ concern
Mexico’s popularity among Chinese electric vehicle and battery makers could potentially intensify the current US and China trade war.
Chinese companies’ investment push in Mexico could undoubtedly offer them a huge advantage over local players, placing Latin America’s second-biggest economy in the middle of the trade war.
In effect, US government officials raised the concerns to their Mexican counterparts during meetings, as per three of the sources. The latter reportedly admitted that they had to be extra mindful in accepting Chinese investments to avoid tension with the US.
“We are concerned by how the People’s Republic of China (PRC) is preparing to flood the United States and global markets with automobiles, particularly electric vehicles (EV), propped up by massive subsidies and long-standing localization and other discriminatory policies.”
Congress members wrote to US Trade Representative Katherine Tai
Indeed, Chinese players’ imminent wave in Mexico can significantly hamper the US Inflation Reduction Act’s efforts to constrain their dominance in the region. As we already know, the bill imposes stricter rules on China-made EVs, batteries, and components. However, these companies can take advantage of Mexico to beat local brands with their low-cost, high-quality EVs.
Why do Chinese players choose Mexico?
As mentioned, Mexico has the second-largest economy in Latin America. It also has the seventh-biggest car manufacturing industry in the world. Electrek also noted that the country is already one of the top two importers of Chinese cars, just behind Russia.
Therefore, it is among the top countries potentially benefitting from COVID-induced global supply chain disruptions and the ever-intensifying US-China trade war. In addition, it offers cheaper labor compared to other countries, and it has a “broad-based car supply chain.” It also has access to the North American free trade deal USMCA, so it is unsurprising that Chinese companies are eyeing Mexico.
Despite the US’ concerns, it clarified that it has no intention to intercept Chinese investments in Mexico. Instead, it seeks to work on imposing trade rules between the two countries. Notably, Mexico heavily relies on the US, where over two-thirds of its exports go. US-based Mexican workers also send back nearly $60 billion annually in remittances to Mexico.
