FT: US concern over Mexico attracting Chinese electric vehicle factories

Washington has raised concerns with Mexico over an imminent wave of Chinese investment into the country, as three of China’s largest electric-vehicle makers prepare to build factories south of the US border, Report informs via The Financial Times.

MG, BYD and Chery, known in Mexico as Chirey, have all been speaking to officials in Mexico to find sites this year, according to several people with knowledge of the talks. Another Chinese company is planning to build a $12 billion battery plant, one person said.

The investment push, which could give producers in China a valuable foothold in the region, puts Latin America’s second-largest economy in the middle of the US-China trade war.

US officials have raised questions about Chinese investment more broadly in meetings with Mexican counterparts, three people said. Mexican officials acknowledged they had to be cautious when considering Chinese investments because of the risks of upsetting the US.

Mexico, the world’s seventh-largest carmaking nation, is one of the countries best placed to benefit from an upheaval in global supply chains caused by disruptions in the COVID-19 pandemic and the US-China trade war. It offers cheaper labour, a broad-based car supply chain and access to the North American free trade deal USMCA.

“The interest of Chinese companies in the Mexican market has grown exponentially,” said Francisco Bautista of EY Latin America, which is working with four Chinese electric vehicle companies looking to locate production in Mexico.

The US is vying with China for supremacy in electric vehicle manufacturing and launched stringent curbs to exclude electric vehicles, batteries and other components and resources made by Chinese companies from its supply chain through the Inflation Reduction Act.

President Joe Biden’s administration is concerned that Chinese carmakers will be able to sidestep the measures by building cars in Mexico, outshining global rivals with technologically advanced models that are more competitively priced.

Top members of the Republican-led House Select Committee on China wrote in a recent letter they were worried Chinese companies would use Mexico as a “back door” into their market.

China is the world’s largest producer of electric vehicles and their batteries, with its carmakers increasingly exporting low-cost models around the world as they face overcapacity in domestic factories.

Chinese carmakers have experienced astronomical growth in Mexico in recent years, accounting for nearly a fifth of sales, up from virtually zero six years ago.

The US has said it is not trying to block Chinese investments in Mexico. But Janet Yellen, US Treasury secretary, recently stressed the need to apply trade rules properly, including a recent US agreement with Mexico to strengthen its foreign investment screening.

Mexico is heavily dependent on the US, where more than two-thirds of its exports go and 37 million people of Mexican origin live and work, sending back almost $60 billion a year in remittances.