By Diego Oré
MEXICO CITY (Reuters) – Mexico’s federal government, under U.S. pressure, is keeping Chinese automakers at bay by refusing to offer incentives such as cheap state land or tax breaks for investments in electric vehicle production, three Mexican officials familiar with the matter said.
The last meeting between top Mexican officials and a Chinese automaker was in January, the sources said, with executives from BYD Co (SZ:) – one of the world’s largest electric vehicle makers by sales.
During the meeting, Mexican officials made clear that they would not provide incentives like those awarded to automakers in the past and that officials would pause future meetings with Chinese automakers, said the sources, who asked not to be identified.
Mexican President Andres Manuel Lopez Obrador’s office did not immediately respond to a request for comment. Mexico’s Economy Ministry declined to comment.
BYD officials and the Chinese embassy in the Latin American country did not immediately respond to a request for comment. A White House spokesman said US President Joe Biden will not allow Chinese automakers to flood the market with vehicles that pose a threat to national security.
Reuters was unable to determine which Chinese automakers have requested meetings since then. Mexican government officials typically do not disclose subsidies given to the companies for plants.
About 20 Chinese automakers now sell cars in Mexico, but none still have a factory in the country. Chinese vehicles represent about a third of the total brand offering in Mexico.
The sources attributed the move to pressure from the US government, particularly the Office of the United States Trade Representative (USTR), to keep Chinese automakers out of the free trade zone established under the North American Free Trade Agreement.
A USTR official’s response to Reuters did not address the reported pressure, but the official said the United States-Mexico-Canada Agreement (USMCA) was not intended to “provide a backdoor to China and others who may trying to access our market without paying…tariffs.”
The official said the USTR is focusing on this issue as it pertains to automobiles, steel and aluminum.
The US intervention reflects increasingly acute fears among the auto industry, labor unions and US political circles that Chinese automakers such as BYD, SAIC, Geely, Chery and JAC want to use Mexico as a backdoor to sell cheap electric cars in the United States without having to pay for it. pay. steep US rates, now at 27.5%.
U.S. Trade Representative Katherine Tai said Wednesday that the U.S. must take decisive action to protect electric vehicles from subsidized Chinese competition.
CAUGHT IN CROSS FIRE
Mexico, Latin America’s second-largest economy, is caught in the crossfire between the world’s two largest economies and its auto markets.
Last month, Republican U.S. Senator Marco Rubio proposed legislation that would seek much higher tariffs on imports of Chinese vehicles. Two days later, three Senate Democrats from auto-making countries urged the Biden administration to raise tariffs on Chinese electric cars.
Chinese automakers can avoid U.S. tariffs by setting up shop in Mexico, as long as they comply with rules on how much of a vehicle must be produced locally.
“A significant portion of the goods arriving in Mexico by ocean are likely to be trucked to the U.S., leading to suspicion that the increase in trade we are witnessing is due to importers applying U.S. tariffs try to circumvent,” says Peter Sand, head of the company. analyst at research agency Xeneta.
To avoid U.S. tariffs, goods must contain a certain percentage of regional assembly and components, varying depending on the product and industry. At least 75% of the major vehicle components – such as the engine or transmission – must come from the North American region.
Despite the headwinds, Chinese automakers like BYD are still looking to put down roots in Mexico.
In late February, BYD emphasized that each factory in Mexico would serve the local market and not ship to the US. But many industry officials are skeptical.
One of the sources told Reuters that BYD was now instead pursuing incentives from state governments, even though they are significantly less favorable than federal governments.
Industrial states like Durango, Jalisco, Mexico State and Nuevo Leon are looking for Chinese automakers to open assembly plants, with a wide range of incentives. Nuevo Leon approved $153 million in incentives for a Tesla factory (NASDAQ:) last December.
Federal incentives have been generous in the past, including free land, water and energy facilities and hiring help, said Francisco Bautista, a partner at EY in Mexico.
Bautista added that these types of incentives have been reduced under the current administration, but some are still given to big investors like Volkswagen’s Audi (ETR:).
In September, Mexican officials from the Departments of Economy and Foreign Relations traveled to Washington to meet with officials from the U.S. Department of Commerce, the Department of State and USTR as part of the U.S.-Mexico High-Level Talks.
During the meeting, the topic of Chinese automakers setting up EV production in Mexico was raised for the first time, although it was not on the agenda, the sources said.
The officials met again in Toronto in January 2024, where another request was made by US officials to hinder Chinese automakers.
Mexico’s Foreign Ministry did not immediately respond to a request for comment.
Mexican officials said that while Chinese investments could help the local economy, the government is concerned about Washington’s anger that the USMCA is due for review in 2026.
Under the sunset clause, the three countries will decide in July 2026 whether to extend the USMCA for another 16 years. Mexican officials fear that U.S. officials could try to revise the trade deal to Mexico’s detriment, one of the sources said.
