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US ‘Pressured’ Mexico to Reel Back China EV-Maker Incentives

US lawmakers are worried Chinese automakers will use Mexico as a back door to sell cheap EVs north of the border without paying tariffs

Electric vehicle (EV) models are displayed at the booths of Denza, a joint venture between Mercedes-Benz Group AG and BYD Auto, and Chinese EV maker Voyah, at a shopping mall in Beijing, China, Nov. 3, 2023. REUTERS/Tingshu Wang/File Photo Purchase Licensing Rights
Electric vehicle models are displayed at the booths of Denza, a joint venture between Mercedes-Benz Group AG and BYD Auto, and Chinese EV maker Voyah, at a shopping mall in Beijing, China, Nov. 3, 2023. Photo: Reuters


Mexico is reportedly holding off offering Chinese automakers incentives to ship its vehicles into the country because of pressure from the US.

The central American country’s federal government is now keeping Chinese automakers at arm’s length by refusing to offer low-cost public land or tax cuts for investment in EV production, sources said.

The last meeting between top Mexican officials and a Chinese automaker was in January, the sources said, with executives of BYD Co – one of the world’s largest electric vehicle makers by sales.

At the meeting, Mexican officials made clear they would not give incentives like those awarded to automakers in the past and that officials would be putting on pause any future meetings with Chinese automakers, said the sources, who asked not to be identified.


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About 20 Chinese automakers now sell cars in Mexico but none yet have a plant in the country. Chinese vehicles constitute about a third of the total brand offerings in Mexico.

The sources attributed the move to US government pressure, specifically from the Office of the United States Trade Representative (USTR), to keep Chinese automakers out of the free trade zone established under the North American Free Trade Agreement.

A USTR official’s response to Reuters did not address the reported pressure, but the official said the United States-Mexico-Canada Agreement (USMCA) was not meant to “provide a back door to China and others who may be seeking to access our market without paying … tariffs.”

The official said the USTR is focused on that issue as it relates to autos, steel and aluminium.

The US intervention reflects increasingly acute fears from its automotive industry, unions and US political circles that Chinese automakers such as BYD, SAIC, Geely, Chery and JAC aim to use Mexico as a back door to sell cheap electric cars in the United States without paying steep US tariffs, now at 27.5%.

US Trade Representative Katherine Tai said on Wednesday the US must take decisive action to protect EVs from subsidised Chinese competition.

Mexico, Latin America’s second-largest economy, is caught in the crossfire between the world’s two biggest economies and car markets.

Last month, Republican US Senator Marco Rubio proposed legislation seeking much higher tariffs on Chinese vehicle imports. Two days later, three Senate Democrats from auto manufacturing states urged the Biden administration to hike import tariffs on Chinese EVs.


US Tariff Regulations

Chinese automakers can get around US tariffs by setting up shop in Mexico, as long as they meet rules for how much of a vehicle must be produced locally.

“A sizeable proportion of the goods arriving in Mexico by ocean will likely be trucked into the US, which gives rise to the suspicion that the increase in trade we are witnessing is due to importers trying to circumvent US tariffs,” said Peter Sand, chief analyst with research firm Xeneta.

In order to avoid US tariffs, goods must have a certain percentage of regional assembly and components, varying depending on the product and the sector. At least 75% of core vehicle parts – like engine or transmission – must be originated in the North American region.

Despite the headwinds, Chinese automakers like BYD are still looking to put down roots in Mexico.

In late February, BYD insisted that any factory in Mexico would serve the local market and not ship to the US. But many industry officials are sceptical.

One of the sources told Reuters that BYD was now chasing incentives from state governments instead even though they are substantially less beneficial than the federal ones.

Industrial states like Durango, Jalisco, Mexico State and Nuevo Leon are looking for Chinese automakers to open assembly plants, offering a wide range of incentives. Nuevo Leon last December approved $153 million in incentives for a Tesla plant.


China EV Production Plans

Federal incentives have in the past been generous, including free land, water and energy facilities and help in hiring workers, said Francisco Bautista, a partner at EY in Mexico.

Bautista added that these kinds of incentives have been reduced under the current government, but some have still been given to major investors like Volkswagen’s Audi.

In September, Mexican officials from the Economy and the Foreign Relations ministries traveled to Washington to meet with US Commerce Department, Department of State and USTR officials as part of US-Mexico high-level talks.

In the meeting, the subject of Chinese automakers establishing EV production in Mexico was raised for the first time although it was not on the agenda, the sources said.

The officials met again in January 2024 in Toronto, where another request was made by US officials to hinder Chinese automakers.

Mexican officials said that although Chinese investment could help the local economy, the government is concerned about angering Washington with USMCA up for revision in 2026.

Under the “sunset clause,” in July 2026 the three countries will decide whether to extend the USMCA for another 16 years. Mexican officials fear US officials could seek to overhaul the trade pact to Mexico’s detriment, one of the sources said.


  • Reuters with additional editing by Sean O’Meara


Read more:

‘Ban Chinese Electric Vehicles From The US’: Senator

China’s BYD Confirms Mexico Factory Plan But Rules Out Exports

US Auto Sector ‘Faces Extinction’ From Chinese Mexico Imports

China’s BYD in Talks on Mexico Factory for Exports to US – Nikkei

China’s CATL Halts US, Mexico Battery Plant Investment





Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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