BYD Leads the Charge: Chinese Automakers' Mexican Offensive and the Challenges of Entering the US Market

BYD Leads the Charge: Chinese Automakers' Mexican Offensive and the Challenges of Entering the US MarketOn December 10th, Chinese automakers like BYD are aggressively entering the Mexican market while keeping a close eye on the US. They're not just importing and selling cars from China; they're actively scouting locations for manufacturing plants in Mexico as a crucial part of their global expansion strategy

BYD Leads the Charge: Chinese Automakers' Mexican Offensive and the Challenges of Entering the US Market

On December 10th, Chinese automakers like BYD are aggressively entering the Mexican market while keeping a close eye on the US. They're not just importing and selling cars from China; they're actively scouting locations for manufacturing plants in Mexico as a crucial part of their global expansion strategy. This underscores potential major shifts in the North American automotive industry and reflects the complex interplay of competition between China and the US in the automotive sector.

In a humble parking lot in a working-class neighborhood of Mexico City, a makeshift BYD showroom is bustling with activity. According to salesman Esteban Alegra, cars are selling as soon as they arrive, with the best-selling model being the BYD Dolphin Mini, a compact electric four-door sedan priced around $18,000 approximately $10,000 less than the cheapest electric vehicle in the US market. This is just one of many dealerships across Mexico where Chinese brands like BYD, Chery, Geely, and SAIC are gaining a foothold.

However, high tariffs make direct entry into the US market challenging for Chinese automakers. Importing cars from China to the US nearly doubles their price, rendering large-scale imports impractical. Furthermore, Chinese manufacturers haven't yet established large-scale production in Mexico to support US exports. Despite these hurdles, the global expansion ambitions of Chinese automakers remain undeterred. Their branding is ubiquitous across Mexican airports, soccer stadiums, and large street billboards, with both fuel and electric vehicles rapidly gaining market share.

BYD and other Chinese auto companies are actively searching for Mexican factory locations. While specific plans haven't been announced, these initial factories will primarily serve the Latin American market, aligning with their strategy in Brazil, Thailand, and other markets to weaken the positions of Japanese, American, and European brands. Undeniably, Mexico is poised to become a potential springboard for Chinese automakers to enter the US market. "Maybe next year, BYD will be in the US market!" Alegra says optimistically, pointing to the cinder block walls being painted part of a future building that will replace the makeshift showroom. "If I can't get it directly to the US, I can help send it!" he adds with a laugh.

However, the likelihood of the Dolphin or other Chinese car brands being sold in the US market anytime soon remains slim. High tariffs are a major obstacle. Chinese automakers haven't attempted to establish a US dealership network or secure sales permits from US federal regulators. While BYD has an electric bus production line in California, this is entirely separate from the private passenger vehicle market. Even buying a BYD car from a Mexican dealership and registering and insuring it in the US is difficult, as these vehicles haven't been certified to meet US safety standards.

Both President Biden and former President Trump have explicitly expressed a desire to prevent Chinese automakers from entering the US market. They both recognize the potential threat posed by Chinese automakers to the US auto and parts industry, which employs millions of workers. Trump threatened a 25% tariff on all Mexican imports, including cars, while Biden is countering Chinese pressure through subsidies for US battery factories.

In the coming years, explaining to US consumers why they can't buy cheaper, more readily available electric vehicles from neighboring Mexico could become a significant challenge, especially if millions of these vehicles are already being produced in Mexico for the US market.

Less than 20 years ago, Chinese cars were often perceived as low-quality, even by many Chinese drivers. But analysts now point to significant improvements in mechanical quality in recent years, surpassing many international competitors and achieving leadership in battery technology, autonomous driving, and in-car entertainment software. The in-car karaoke systems and rotating touchscreens exemplify this technological advantage.

Chinese automakers have already captured significant market share from brands like Volkswagen, which once dominated the Chinese market. Even Tesla, with its Gigafactory Shanghai, is facing stiff competition from Chinese brands like BYD. Tesla CEO Elon Musk's recent $250 million contribution to Trump's campaign could make him a key influencer in future US automotive and China policies.

Felipe Muoz, a global analyst at JATO Dynamics, notes: "Before the pandemic, Western automakers firmly controlled the rules. Now, it's completely reversed." China, as the world's largest auto market, is seeing the rise of its domestic manufacturers profoundly impact the global automotive industry.

General Motors recently announced that its ongoing losses in China would result in over $5 billion in profit reductions due to restructuring. GM CEO Mary Barra acknowledged the undeniable price pressure from Chinese manufacturers in an interview, but maintained that the company is capable of competing and will continue to seek cost-effective strategies.

Arno Antlitz, CFO of Volkswagen Group, pointed out that the auto industry has successfully navigated challenges from emerging competitors, including Japanese automakers in the 1970s and Korean brands in recent decades. "We believe our competitive setup remains solid," he said in an October interview.

However, the current wave of Chinese auto brands is unprecedented in its speed and scale. Chinese brands have quickly surpassed Japan to become the world's largest auto exporter. According to JATO Dynamics, Chinese brands accounted for 9% of the Brazilian car market in 2023, up from 1% in 2019; in Thailand, the share jumped from 5% to 18%. In Mexico, the market share has grown from virtually zero to 9%.

"Chinese brands successfully capitalized on market opportunities when other brands had inventory shortages and Mexican consumers faced long waiting times for purchases," says Guillermo Rosales Zrate, president of the Mexican Automotive Dealers Association.

At a dealership in the San Luis Potos industrial zone in Mexico, manager Fernando Lpez says BYD models are attracting customers who would have otherwise bought Toyotas. "The BYD 'Shark,' a plug-in hybrid pickup truck priced at $45,000, is stealing customers from the Toyota Tacoma; while the $30,000 BYD Song plug-in SUV is taking market share from the Toyota RAV4," he notes, citing price differences of around $10,000 cheaper than comparable Toyota models. Referring to BYD, Lpez states, "I'm not sure if they can sell in the US, but they are fully capable of competing with any brand."

Mexico is the world's seventh-largest car producer, behind only South Korea and Germany. Most major automakers, including General Motors, Ford, Stellantis, and Volkswagen, have plants in Mexico. Many factories also utilize parts from Chinese companies, such as Minth, which produces bumpers and other automotive parts next to the BMW plant outside San Luis Potos.

According to the Mexican Automotive Industry Association, over 2 million vehicles were produced in Mexico by the end of September this year, with nearly 80% exported to the US. While the US imposes high tariffs on Chinese-made cars, theoretically, Chinese cars exported from Mexico to the US would currently only face a 2.5% tariff. However, the US could pressure the Mexican government to erect trade barriers against Chinese automakers.

Mexico's newly elected president, Claudia Sheinbaum, has been cautious about the rumored BYD plant in Mexico, emphasizing the government's priority of maintaining close ties with the United States. Joshua Meltzer, a senior fellow at the Brookings Institution focusing on international economic relations, states, "Mexico's economic ties to the US are very strong; ultimately, it's a simple economic trade-off."

In October, the Mexican government raised import tariffs on cars from 15% to 20%, widely interpreted as a response to the growth of Chinese car sales.

The pressure from China will intensify further with the rise of electric vehicles, which now account for half of new car sales in China, giving Chinese manufacturers a head start in the global market. Auto industry executives widely believe that electric vehicles will eventually displace traditional gasoline and diesel models, even if the Trump administration might eliminate financial incentives for electric cars and trucks. In fact, several automakers, including GM, Hyundai, and Mercedes-Benz, have already invested billions in electric vehicle and battery factories.

In Mexico, while EVs account for less than 2% of new car sales, sales increased by over 40% this year, despite a lag in public charging infrastructure. Notably, in Mexico City, EVs are exempt from driving restrictions imposed on gasoline and diesel cars on days with severe air pollution, which has been a boost for EV market expansion. The BYD Dolphin Mini is one of the beneficiaries of this trend.

Daniela Alvarez, a salesperson at another BYD dealership in Mexico City, located beneath a parking lot storefront, says the Dolphin Mini's success is due to (The provided text cuts off here. The rest of Daniela Alvarez's statement is missing.)