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Chinese EV Production in Mexico Threatened by U.S. Influence

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The Mexican government may halt incentives due to pressure from the United States when Chinese electric vehicle manufacturers aim to build factories, according to a Reuters report on April 18, 2024. Such moves concern access to cheap public land and tax breaks on Mexico’s EV production investment.

Companies that can benefit from this include Tesla, pushing for factory construction in Nuevo Leon, the Audi factory in San Jose Chiapa, and the BMW factory in San Luis Potosi.

This could impact BYD’s decision to set up a factory in Mexico for the North American market since last January. According to Reuters, the previous meeting between Mexican authorities and BYD was held in January. It was clearly stated that the authorities would no longer provide the same incentives they used to offer to car manufacturers, and future meetings with Chinese car manufacturers would be put on hold. However, Reuters reported no direct mention from the Mexican authorities or BYD. The White House has stated that it will not allow Chinese car manufacturers to flood the market with vehicles threatening national security.

According to Reuters, about 20 Chinese car manufacturers are selling vehicles in Mexico, all of which are imported. According to Reuters, Chinese cars account for about one-third of Mexico’s total brand supply, but no company operates a factory in Mexico.

Mexico’s car factories are receiving subsidies and have lower production costs than the U.S., making them attractive. However, as part of NAFTA (along with the U.S. and Canada), vehicles imported from Mexico to the U.S. are exempt from tariffs thanks to the free trade agreement. Moreover, EVs produced in Mexico are also eligible for U.S. subsidies under the Inflation Reduction Act. However, Chinese EVs may not qualify due to the origin of the battery materials.

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