Top Chinese electric vehicle maker BYD is considering setting up a plant in Mexico, the head of the company’s local subsidiary has told Nikkei, as the automaker seeks to establish an export hub to the US.
Overseas production is indispensable for an international brand, said Zhou Zou, country manager of BYD Mexico. Mexico is a key market with vast potential, Zou added, expressing eagerness for a plant in the country.
In the fourth quarter of 2023, BYD beat Tesla for the first time ever in terms of global EV sales volume. But BYD’s sales of passenger vehicles are concentrated in China, and offshore markets accounted for only 8% of overall sales last year.
As BYD seeks to expand its global presence, the automaker is building new plants overseas in addition to expanding exports from China. The automaker opens facilities in Thailand this year and announced plans in December to build a production base in Hungary within three years.
In Latin America, BYD plans to spend BRL 3 billion (USD 605 million) to build a plant in Brazil.
BYD has launched a feasibility study for a Mexican plant. The company is negotiating with national and local government officials over a location and other terms for the plant.
Zou did not say where BYD might build, but the northern state of Nuevo Leon and the Bajio region in central Mexico appear to be leading candidates. The Yucatan Peninsula and other places in southern Mexico are also likely options.
The biggest advantage from locating capacity in Mexico involves lower export costs into the US. The US-Mexico-Canada Agreement imposed tougher North American manufacturing quotas for automakers looking to benefit from tariff-free exports into the U.S. market. A series of strikes have increased labor costs in the US, so the wage gap between the US and Mexico is expanding.
And requirements for US tax breaks on EV purchases include assembly of the vehicles in North America, along with restrictions on where batteries can originate. Chinese EV companies that lack a manufacturing hub in North America likely would be at a disadvantage.
The global EV market slowed last year, and former US President Donald Trump, who is less than enthusiastic about the spread of EVs, could get re-elected in November.
But EVs and plug-in hybrids are growing in every market worldwide, Zou said, calling worries unfounded.
Overall, 1.36 million vehicles were sold in Mexico last year, up 24% from 2022. Of those, Chinese vehicles accounted for more than 120,000 , a gain of 60%, business newspaper El Financiero reported.
SAIC Motor affiliate MG, along with Chery Automobile and JAC Group, are three Chinese brands that have a head start in Mexico.
Mexico is on the verge of becoming a key manufacturing hub for major EV makers. Tesla plans to build a gigafactory in Nuevo Leon, prompting Chinese suppliers to announce about USD 1 billion in parallel investments. CEO Elon Musk has indicated the new Mexican factory will be a mass production hub for low-cost EVs.
South Korea’s Kia has said it will manufacture EVs in Mexico. Last year, BMW and Stellantis said they will manufacture EVs in Mexico.
Chinese investments in Mexico jumped 50% to USD 587 million in 2022, according to Mexico’s secretariat of economy, and appetite for investment remains strong this year. Solarever, a Chinese EV maker, unveiled plans to spend MXN 6.8 billion (USD 395 million) in the Mexican state of Durango.
Mexico has drawn 170 nearshoring investments from various countries totaling USD 74 billion, according to an estimate by Julio Carranza Bolivar, president of the Mexican Banking Association. During the first nine months of last year, Mexico received USD 32.9 billion in direct investment, or 90% of the full-year 2022 total.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.