Will China Drive Its Electric Cars In From Mexico?

Imported Chinese cars already make up 20% of Mexican auto sales, and Chinese sales are growing rapidly after the Mexican government suspended tariffs on EVs through September. But the real prize for Chinese companies is to the north—last year, almost 12 times as many light vehicles were sold in the U.S. as in the Mexican market.

From Monterrey, Chinese companies can get EVs to the U.S. market at a much lower tariff cost than if they shipped directly from China. American trade law applies only a 2.5% tariff on auto imports from Mexico that don’t comply with the USMCA’s automobile rules of origin because they get a substantive portion of their components from outside states party to the deal.

With all the money Beijing pumps into its EV sector, this is still a good deal for Chinese companies.

A BYD Seal made in China retails for 12% less than a Tesla Model 3 in Mexico.

With that kind of price advantage, a Mexican subsidiary of a Chinese automaker could manufacture an electric vehicle with a battery and other components from China and export it to the U.S. competitively even after paying the tariff.

If a Chinese automaker brought enough of its supply chain to Mexico—including battery production—its cars could even meet regional content requirements and avoid American tariffs altogether.