Near Monterrey, Chinese auto part makers are quickly establishing plants to supply Tesla Inc.’s new factory, sparking US alarms.
This development is part of the response to Trump-era tariffs and marks a significant Chinese industrial expansion in Mexico.
Elon Musk has invited Chinese suppliers to Mexico, aiming to duplicate Tesla’s Shanghai supply chain efficiencies in Nuevo León.
This strategy supports Tesla’s goal to manufacture a more affordable electric vehicle, with the local government offering $153 million in incentives.
Tesla’s Austin facility already sources parts from Chinese-owned factories in Mexico, with exports to the US reaching $1.1 billion in 2023, up 15%.
Currently, 33 Chinese auto part companies operate in Mexico, with 18 exporting to the US.
Experts argue that leveraging China’s supply chain makes sense for global manufacturers seeking to optimize margins.
The shift has been fueled by the US-China trade war, leading to an increased Chinese industrial presence in Mexico.
By 2023, Chinese firms will have occupied over 9 million square feet in Mexican industrial parks.
Electric vehicles manufactured in Mexico could be eligible for a $7,500 US tax credit under the Inflation Reduction Act of 2022.
This is contingent upon them avoiding sourcing battery materials from entities associated with rival countries such as China.
Chinese Subsidiaries in Mexico Raising Concerns
US officials are concerned about Chinese subsidiaries in Mexico potentially circumventing trade measures to export electric vehicles to the US.
The Biden administration is contemplating restrictions on all Chinese “smart” electric vehicle imports due to data security risks.
Recent discussions by US Treasury Secretary Janet Yellen in Mexico emphasize the country’s significance.
Increasing Chinese interest in Mexican lithium mining further underscores Mexico’s role in the electric vehicle supply chain.
However, the increasing Chinese presence in Mexico’s manufacturing sector might lead to NAFTA revisions.
The US and Canada may aim to restrict Chinese auto part imports to safeguard domestic industries and foster competitive innovation while averting rising vehicle costs.