Foreword:
Despite the unprecedented fierce competition in the domestic market, Chinese auto brands are gaining ground after going overseas.Although the face of some countries set up tariff barriers and many other obstacles, many Chinese auto brands but still with its excellent cost-effective and perfect and efficient supply chain system, not only in the “Global South” market deeper roots, but also in the traditional automotive powerhouses to carve their own distinctive mark.Now Mexico has become the first choice for Chinese car enterprises to “go to sea”, Mexico’s National Statistics Institute data show that as of December 2023, there are 12 Chinese car companies, 39 brands in the Mexican market; in 2023, Mexico’s total new car sales of 1,361,000 units, of which more than one-fifth originated from China’s imports.
Although it has been fruitful, President Donald Trump’s 25 percent tariff increase on Mexico and Canada has come into effect on April 3, according to Xinhua.
He pointed out that Mexico and Canada “must” set up automobile factories and other facilities in the U.S. In this context, the situation of Chinese automobile exports to Mexico is still optimistic?
Mexico’s Automotive Industry: Policies + Trade Agreements Promote
The Mexican automobile industry started in 1902, and the American “Big Three” were the first to enter the Mexican market.Mexico’s automotive industry has a long history, due to geographic location, the United States of the Big Three “Ford, General Motors, Chrysler” was the first to enter the Mexican market in the early 20th century.Subsequently, Toyota, Nissan, Volkswagen entered the Mexican market in the 1960s, the layout of production capacity.
The introduction of local protection policies in 1962 slowed down the development of the Mexican automobile industry.In order to protect Mexico’s domestic automobile industry, the Mexican government introduced a policy to prohibit the import of vehicles, engines and major automobile parts and components, the proportion of domestic parts and components supporting the requirements, and to limit foreign ownership of auto parts factories.The bill makes a number of car companies, such as Mercedes-Benz, Fiat, such as the withdrawal of Mexico in the 1960s, the development of the Mexican automotive industry has a negative impact.
After the 1970s, policies and trade agreements came out one after another, promoting the accelerated development of the Mexican automotive industry. 1972, the Mexican government introduced policies to relax the control of the automotive industry and reduce the proportion of domestically produced parts and components.Subsequently, in 1994, the North American Free Trade Agreement was launched to promote the development of the Mexican automobile industry.
Mexico’s production has grown rapidly since the trade agreement came into force.The North American Free Trade Agreement (NAFTA), which was signed in 1992 and entered into force in 1994, establishes a 15-year period from the date of entry into force for the gradual elimination of trade barriers and the free movement of goods and services.Thanks to the establishment of the free trade zone, Mexico’s automobile production has grown rapidly since 2005.
FDI (foreign direct investment) in Mexico’s automotive industry maintains a high level. The automotive industry accounts for a relatively high share of cumulative FDI from 2017-2022.Mexico’s automotive industry through the acceptance of foreign direct investment to create foreign exchange, innovation and expansion of production capacity, the automotive industry FDI accounted for about 20% in 2014-2019.In terms of the level of foreign investment attracted in automotive parts, from 1999-September 2022, it came mainly from the U.S., accounting for about 54%.2024 In the first half of the year, the Mexican automotive parts industry attracted strong FDI.Mexico’s National Association of the Automotive Components Industry (INA) reported that the country received $1.634 billion in foreign investment in the sector, a 15.09% increase compared to the same period in 2023.
The U.S.-Mexico-Canada Agreement (USMCA) increases the number of automotive OEMs and component manufacturers that can build plants in North America.The U.S.-Mexico-Canada Agreement (USMCA) was implemented on July 1, 2020, compared to 1994, strengthened the provisions of the automotive industry, and improved the standards for the origin of parts and components, according to the agreement, 75% of automobiles produced in North America and more than 75% of the constituent parts of the production of the local area can enjoy zero-tariff preferential treatment, which is a proportion of the previous 1994 provisions of 62.5%This is a significant increase from the 62.5 percent previously established in 1994.
Mexico Becomes a “Hot Spot” for Automotive Investment
Nowadays, this land, which has experienced a hundred years of accumulation, with its own unique advantages, is transforming from a historic automobile manufacturing base into a “hot spot” for investment where the global automobile industry competes for layout, attracting attention from all over the world, and bringing new opportunities and imaginative space for Chinese automobile enterprises on their road of overseas expansion.The automobile industry contributes significantly to Mexico’s economy, with GDP and manufacturing industries accounting for 3.6% and 18% respectively, which is very attractive to Chinese automobile enterprises.In terms of labor force, Mexico has a large young population, attaches importance to technical education, high labor skills and relatively low cost.Coupled with abundant lithium resources, ranked in the top ten global reserves, providing solid support for the transformation of automotive electrification.
According to overseas media reports, BMW announced that it will invest 800 million euros in a new production site in the Mexican state of San Luis Potosí to produce high-voltage batteries and all-electric Neue Klasse models.2023 Since then, Germany’s Volkswagen Group, U.S.-based Ford, Germany’s Continental, and Japan’s electric motor maker Denso have all announced plans to invest in Mexico, with a major focus on electric vehicles and theirparts and components field.Not only Europe and the United States automobile enterprises continue to invest in Mexico, China’s car companies also want to further layout of the Mexican market.
Mexico has a labor cost advantage.Low labor costs are one of Mexico’s advantages in attracting many overseas manufacturers.In recent years, average labor costs for manufacturing in China have far exceeded those in Mexico.The average daily wage in Mexico is about 170 Mexican pesos (about $60) and about 260 pesos in the northern border zone.
Mexico has significant geographic advantages and proximity to potential markets.One of the reasons why Mexico attracts many automotive industry chain companies is its proximity to potential markets.Mexico is strategically located on the border between North and South America.Products manufactured in Mexico can enter the North American market at a lower cost and easily reach the South American market.The time it takes to ship goods from Mexico to customers can be reduced by 75% compared to Asia.Setting up overseas factories not only reduces freight costs, but also shortens lead times and inventory costs, providing customers with more attractive services.
Mexico’s own brand strength is weak, mainly for specific markets.Mexico has been importing automobiles since 1895, keeping up with the trend of the automobile era, and in recent decades Mexico’s automobile industry has been developing into a pillar industry.However, most of Mexico’s automotive industry is an assembler serving foreign automotive brands, and most of the local automotive brands are produced in small batches and for specific markets.
Chinese automakers are rapidly increasing their share of the Mexican market by virtue of their high price-performance ratio and channel marketing.The price range of hot-selling models in Mexico is RMB 100,000-150,000, which is positioned in the low-end market, and the product lines of Chinese automakers are characterized by modernization, high technology and personalization.Compared with other brands, Chinese automakers have diversified their products, while selling at relatively low prices and offering good value for money.Meanwhile, some car companies have active sales channels and marketing strategies in Mexico.
“Country jumping” hits a wall
By 2022, Mexico has replaced China as the top exporter to the U.S. In the process, U.S. influence on Mexican policy and economy has remained untouched.To some extent, it can be said that the future development of Mexico how, in essence, is not entirely by themselves to decide.
In fact, in April 2024, the Mexican federal government has been forced by U.S. pressure to state that it will cancel the policy of providing subsidies to the landing of Chinese car companies.Although we are relatively optimistic about the outcome of the future interests and political game between China and the United States and Mexico, judging that the possibility of extreme political risk is relatively low, but the Mexican sea should still fully consider the possible impact and take active countermeasures.
Chinese car companies in Mexico not only need to deal with geopolitical challenges, but also in the fierce competition in the market.A number of global automakers have already laid out or planned to build factories in Mexico to compete for market share in North America.Mexico’s investment environment also has challenges, especially water and power shortages, especially in the manufacturing industry concentrated in the northern region, the lack of infrastructure constraints on new companies to move in and existing business operations.Tesla’s slow progress in building a factory in Mexico is a case in point.
Mexico’s New Energy Vehicle Industry is Just Getting Started
Mexico’s new energy vehicle penetration rate is low, and the industry chain is blank.According to the data of relevant organizations, the penetration rate of new energy vehicles in Mexico is only about 1%, and the penetration rate has been flat in recent years, with no obvious trend of increase.In 2023, the sales of new energy vehicles amounted to 16,000, with a penetration rate of 1.3%, of which there are fewer pure-electric models, mainly dominated by plug-in hybrids.In 2024, the sales of new energy vehicles in Mexico hit a new high of 124,000, with a year-on-year growth of 67.3%.
Mexico’s local new energy industry chain is missing, and the production of trams in Mexico is mainly for export.The Mexican government has an open attitude towards new energy vehicles, but does not have a complete new energy industry chain as support.According to LatePost, the number of suppliers of electrification, thermal management and intelligence required for electric vehicles accounted for only 2.2% of the automotive supply chain in Mexico, while the number of relevant electric vehicle suppliers in China accounted for 8.8%, which has given a strong impetus to multinational automobile enterprises to carry out the electrification upgrading of factories in the era of oil vehicles, and also allowed new players who have just entered Mexico to participate in the formation of new energy industry chain.Formation, Mexico is expected to become a collection point of the global new energy industry chain layout.
Tesla leads the way in ramping up new energy vehicle capacity in Mexico.Tesla Mexico Nuevo Leon state factory’s latest plan to be completed and put into operation in the first quarter of 2025, Tesla Mexico factory is more than 200 kilometers away from the U.S.-Mexico border, 600 kilometers away from the Tesla Texas factory, the two factories will share part of the supply chain.The Mexican market, which has just started, has become the focus of the layout of car companies.According to the CICC research report, since 2022, Stellantis, Ford, Nissan and other car companies announced the expansion of Mexican factories, General Motors, Volkswagen Mazda and other car companies have also adjusted the production line for the production of electric car models.
Prognosis of future trends
To summarize, the success of Chinese car companies investing and building factories in Mexico depends on whether they can adapt to the environmental changes in Mexico as well as successfully replicate the domestic excellent management experience system in Mexico.Chinese car companies in Mexico today, the competition is also more intense, in the early stage of entering the local market, some car companies tend to play the price war, but this burning mode is difficult to bring profits in the short term, but also will damage the enterprise’s assets and liabilities.With the United States to further increase the strength of economic sanctions, China as one of the main object of U.S. sanctions, also facing the systematization and complexity of the economic sanctions system.
For Chinese companies, long-standing problems within Mexico cannot be ignored, such as safety of personnel and equipment, power shortages, lack of infrastructure, and lack of modern industrial parks.Although Mexico’s “nearshore outsourcing” is being promoted on a large scale, new entrants will mainly face obstacles such as lack of industrial land and access to reliable energy.
In a nutshell, in order to strive to “live” and then “take root” in the Mexican market, it may be necessary to dig deep into the potential of Mexican market segments, and actively participate in the transformation of the local transportation sector’s decarbonization, and seize the market for the electrification of public vehicles and public transportation; it is also necessary to understand the user needs and usage scenarios of the local market.It is also necessary to understand the user needs and usage scenarios of the local market.
Article source: high priests who lead the way
