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U.S. automakers at risk from Chinese factories in Mexico.

The automotive landscape is undergoing a significant change as major Chinese electric vehicle (EV) companies, such as BYD, MG (SAIC) and Chery, are establishing new manufacturing facilities in Mexico.

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Automotrices de EE. UU. en riesgo por fábricas chinas en México.

This development, reported by the Financial Times, has raised concerns among U.S. authorities. The move is seen as a potential strategy for these companies to indirectly access the US market, taking advantage of Mexico’s favorable trade agreements with the United States.

This strategic shift could take advantage of the North American Free Trade Agreement (NAFTA), allowing Chinese EVs to enter the U.S. market at lower costs, challenging American automakers. The potential impact on the U.S. auto market is significant, and there are concerns that it could weaken American manufacturers. This concern is amplified by China’s dominant position in the EV battery supply chain, which enables the production of more cost-effective EVs.

The United States has recently implemented stricter rules to make it more difficult for EVs with Chinese components to qualify for tax incentives. However, the expansion of Chinese automakers in Mexico presents a new challenge. Lawmakers on a select committee on China have suggested the need for stronger trade rules to prevent Chinese automakers from exploiting this “backdoor” entry into the U.S. market.

Mexico’s attractiveness to automakers is due to its lower labor costs and existing free trade agreement with the U.S. Tesla, for example, plans to establish a gigafactory near Monterrey, Mexico, which is expected to produce an affordable $25,000 electric car.

In Europe, Chinese EVs have already had a significant impact. Despite doubling their prices in the European market, Chinese manufacturers such as BYD continue to offer more affordable options than European brands. This pricing strategy has led to a boom in Chinese EVs in Europe.

The presence of Chinese automakers in the U.S. auto market has been a topic of debate for more than a decade. Although previous plans to sell Chinese models in the US did not materialize, the new strategy of manufacturing EVs in Mexico could change the dynamic. Chinese-made vehicles are already sold in the U.S. under brands such as Volvo and Polestar.

As Chinese car companies gain a foothold in the North American area, the possibility of Chinese cars gaining prominence in the US market, even winning major automotive awards, is increasingly likely.