Chinese automaker BYD has set its sights on Mexico as its quest for global expansion turns toward North America.
The Shenzhen-based car company, whose rapid growth has made it one of the world’s largest electric-vehicle sellers, is scouting locations in the country for a factory, from which it would consider exporting cars to the U.S., according to people familiar with the matter.
The plans show rising enthusiasm within China’s car industry for expansion to North America, despite the political risks. Building cars in Mexico for the U.S. would allow the automakers to avoid hefty import tariffs that would be applied if they were to send them directly from China.
CEOs at rival automakers have warned about the potential threat from China, with some suggesting the need for more government action to avert such competition in the U.S. These executives are concerned about what they see as a big cost advantage enjoyed by their Chinese competitors in EVs.
Any such clash could still be some time away, and people familiar with BYD’s plans said it hasn’t made any decisions about Mexico.
A BYD spokesperson said the company doesn’t have any “imminent announcements to make regarding new markets.”
At least a dozen Chinese electric-car component suppliers have announced new factories or added to their existing investments in Mexico in recent years, according to stock-exchange filings. These parts makers are responding to a U.S.-Mexico-Canada trade deal that encourages carmakers in North America to use locally sourced content.
The most competitive automakers
BYD, short for Build Your Dreams, has been rapidly expanding both inside and outside China. In recent years, BYD’s low-price EVs have gained traction with buyers in places such as Europe and Southeast Asia.
In the fourth quarter of last year, it overtook Tesla for the first time as the world’s largest EV seller.
In recent weeks, executives at some Western car companies have become more vocal about the potential threat these Chinese firms pose to their own EV plans. Through a mix of engineering, government subsidies and lower labor costs, BYD and other China-based EV makers have been able to lure customers with stylish and technologically advanced EVs at attractive prices.
On Thursday, Carlos Tavares, chief executive of Chrysler-parent Stellantis, said it was imperative the global automaker be able to match its Chinese rivals on cost, or it would risk ceding ground. He described their expansion as “very powerful” and likened their potential entry in the U.S. to the arrival of the Japanese automakers in the 1970s and South Korean firms in the 1990s.
“You can see it in the European markets,” Tavares said during a conference call with analysts. “We may not want to see—a third time—the same movie.”
“If there are not trade barriers established, they will pretty much demolish most other car companies in the world,” Musk said, during Tesla’s earnings call in January.
The European Union is conducting an investigation of Chinese EV makers that could result in new tariffs if EU officials find the Chinese companies are receiving unfair subsidies.
Benefits of Mexico
Mexico would be a natural staging point for Chinese automakers to enter the U.S. market because of its proximity, relatively low labor costs and the opportunity to take advantage of low or zero tariffs on made-in-Mexico vehicles. People familiar with BYD’s plans said some of the locations it is examining are near the U.S. border.
Currently, Chinese-built EVs are subject to a 27.5 percent tariff when imported into the U.S.—the regular 2.5 percent tariff that generally applies to imported cars plus an additional 25 percent tariff that hits Chinese-made cars and was introduced by the Trump administration in 2018.
The Biden administration is debating whether to raise tariffs on Chinese EVs further, The Wall Street Journal has reported, and has also limited eligibility for a $7,500 consumer subsidy for cars built with batteries made by Chinese companies.
Cars made at a Chinese-owned factory in Mexico, by contrast, could enjoy the low 2.5 percent tariff upon entering the U.S. The factory’s cars could possibly pay no tariff if they met stringent standards for local content under the U.S.-Canada-Mexico Agreement adopted in 2020.
Executives at Toyota in North America estimated in an internal memo last fall that Chinese companies had a 25 percent to 30 percent cost advantage over global competitors when manufacturing EVs—more than enough to overcome the small U.S. tariff. If the U.S. government pushes EV adoption too quickly, it would serve as an open invitation for Chinese EV companies including BYD, Geely and NIO to “storm the U.S. market,” the memo said.
Stella Li, a top BYD executive, visited Mexico City in January to discuss the car maker’s expansion plans in Mexico with local officials, the country’s economy ministry said. BYD recently appointed Jorge Vallejo, who formerly worked for Nissan and Mitsubishi in Mexico, as its general director in the country.
U.S. monitoring investments
At home in China, BYD makes many parts in-house, including its EV batteries, to reduce costs. It isn’t clear how much BYD would be able to replicate those cost advantages by shifting some production to Mexico.
Although BYD executives have long harbored ambitions to sell passenger EVs in the U.S., they have moved cautiously given the potential backlash from regulators and U.S. rivals. In North America, the company currently sells electric buses and trucks made at its site in Lancaster, Calif.
As BYD weighs the possibility of selling cars to Americans, the coming U.S. presidential election is one factor it is watching closely, people at the company said. BYD executives see other potential uses for the plant in Mexico, including using it as an export hub for shipping cars to South America or sending batteries and other car parts to the U.S. Japan’s Nikkei newspaper earlier reported that BYD was looking at a plant in Mexico.
Officials in the Biden administration are monitoring Chinese investment in Mexico amid concerns Chinese businesses could take advantage of North American free-trade agreement rules. In December, Treasury Secretary Janet Yellen visited Mexico to strengthen cooperation on security and financial issues, including plans to establish a group to review foreign investments in North America.
“There’s no question the global expansion of the Chinese auto industry is a highly disruptive force,” said Matt Blunt, president of the American Automotive Policy Council, an auto-industry lobbying group that counts
“We don’t have a specific policy prescription, but we think it’s important that industry leaders and policymakers are thinking about the potential implications,” he said.
Write to reporters River Davis at river.davis@wsj.com, Ryan Felton at ryan.felton@wsj.com and Selina Cheng at selina.cheng@wsj.com
