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The Diplomat
6 days ago
- Automotive
- The Diplomat
How Trump's Tariffs Upended BYD's Mexico EV Gambit
Intensifying China-U.S. trade tensions are reshaping EV supply chains across the Americas, redirecting Chinese investments toward more politically receptive markets like Brazil. In 2023, Chinese automaker BYD announced an ambitious project to build a 150,000-unit electric vehicle (EV) plant in Mexico, epitomizing the promise of nearshoring. Mexico's low labor costs, robust supply chains, and duty-free access to North America under the U.S.-Mexico-Canada Agreement (USMCA) made it a strategic gateway for Chinese manufacturers aiming at the booming U.S. EV market. Two years on, this vision has collapsed. In July 2025, BYD indefinitely shelved the project. Executive Vice President Stella Li cited 'geopolitical issues significantly impacting the automotive industry,' signaling the project's suspension amid rising China-U.S. tensions. The immediate catalyst was the tariffs put in place by U.S. President Donald Trump. In September 2024, Trump – then a former president and the Republican nominee for the 2024 presidential election – proposed a prohibitive 200 percent tariff on Chinese-brand vehicles assembled in Mexico. He explicitly said such a tariff would be designed to make Chinese cars built in Mexico uncompetitive in the U.S. market. Otherwise, the U.S. 'will not have any [automobile] manufacturing plants,' Trump warned. 'China is going to take over all of them because of the electric car.' Trump's proposed tariff dwarfed the existing 100 percent levy the Biden administration had just added to Chinese EVs at the time. While he hasn't implemented the change since re-entering the White House, Trump did implement an additional 25 percent tariff on all automotive imports, although close allies like Japan and South Korea won lower rates in trade negotiations. The tariff burden has effectively frozen BYD's $3 billion investment, disrupting negotiations with Mexican states such as Puebla and Jalisco, and creating uncertainty across the automotive sector. Before the latest iteration of Trump's trade war, Mexico offered clear advantages for Asian automakers, including BYD and other Chinese firms. Auto industry wages average about $4 per hour, significantly lower than comparable U.S. wages. Yet USMCA allowed tariff-free exports to the U.S. if 75 percent of vehicle content is sourced in North America. Mexico also benefits from extensive transport infrastructure, including dual-ocean ports and rail connections to major U.S. markets, significantly reducing transit times compared to direct shipments from Asia. For Chinese companies, Mexico also represented a hedge against increasing U.S. and European antidumping investigations. Companies such as BYD, SAIC MG, and Chery expanded dealership networks, while JAC Motors began local assembly operations as early as 2017. However, the growing bipartisan consensus in Washington now views Chinese EVs as strategic threats. Trump's tariffs effectively weaponized border access, forcing automakers to reconsider their production strategies. Even before Trump's escalation, Beijing had expressed reservations. China considers its companies' strength in the EV sector to be a key plank of its economic security plan. In March 2025, China's Ministry of Commerce reportedly delayed approval for BYD's Mexican venture due to security concerns about proximity to the U.S., potentially exposing sensitive battery and software technologies to IP theft. Instead, Chinese authorities are now encouraging investment in Belt and Road partner countries such as Brazil, Hungary, and Thailand. This aligns with Mexican President Claudia Sheinbaum's statement from November 2024, indicating that her administration had not received an official investment proposal from BYD. In other words, the factory never got past the theoretical stage – even before Trump was re-elected. Privately, Mexican officials recognize their dilemma: they can either attract billions in Chinese investment or maintain harmonious relations with their primary trading partner, especially with USMCA scheduled for review in 2026. The most immediate impact will be to diminish Mexico's prospect of becoming Latin America's primary EV hub. Tesla has also postponed its Nuevo León gigafactory, as Trump's administration moved to revoke consumer credits for EV purchases. Mazda, Nissan, and Stellantis have similarly placed investments on hold. Suppliers who ramped up for EV production, like Querétaro-based wiring harness maker Nexxus and lithium-ion cathode startup Trina in Sonora, now face uncertain futures. Conversely, Brazil stands to gain significantly. BYD has already begun constructing a $1 billion plant in Bahia for assembling passenger cars and electric trucks targeting South America. SAIC MG expanded its São Paulo factory, while GAC Motor is exploring Rio de Janeiro as an assembly location. Brazil's modest 4 percent tariff on electric-powertrain imports makes it increasingly attractive compared to the steep potential duties facing Mexico. Alberto de la Fuente, president of Mexico's National Auto Parts Industry, emphasized the economic impacts, noting that each additional tariff percentage erases roughly $150 in profit per compact EV, severely impacting competitiveness. This trend risks creating a divided Latin America, with Mexico retaining traditional combustion-engine manufacturing for North America, and Brazil emerging as the region's leading EV production base for Mercosur and African markets. 'It makes little sense for BYD to enter Mexico without tariff-free access to U.S. markets,' explained Gregor Sebastian, a senior analyst at Rhodium Group. 'Until trade uncertainties resolve, Chinese investments will likely favor Brazil and Southeast Asia.' The effects extend to the entire supply chain for electric vehicles and EV batteries. Sonora's lithium industry, which expected investments from major Chinese battery makers, may now default to raw exports to China, limiting regional value-added jobs. Initiatives such as Nuevo León's T-MEC rail line and Jalisco's dry port at Ocotlán, designed as EV export hubs, now face uncertain prospects. Mexican technical colleges that introduced EV-specific training programs risk oversupplying graduates in a shrinking local market. 'Once tariffs reach prohibitive levels, they transform corporate calculus,' noted Maaike Okano Heijmans from the Clingendael Institute, 'forcing companies to reconfigure global manufacturing footprints.' BYD's halted Mexican venture underscores the global trend of clean-tech supply chains fracturing along geopolitical fault lines. Asia-Pacific companies now navigate competing blocs. The United States and its allies are enforcing stringent industrial policies against Chinese components, while China-driven networks are being fostered by Belt and Road funding. The European Union and select middle powers are attempting neutrality while concerned about subsidized Chinese competition. Going forward, Mexico has a few options. It can choose to prioritize manufacturing batteries over EVS. Collaborations with battery manufacturers like CALB and LG Energy Solutions, supplying multiple automakers, are politically safer investments. Mexico can also seek to tap into U.S. International Development Finance Corporation grants designed to 'friend-shore' critical mineral projects, such as Mexico's lithium developments. The government could also seek to negotiate a solution that will allow it to build an EV manufacturing industry with an eye toward the future, when tariff policies might moderate. This might involve agreements to limit Chinese EV production exclusively for local markets, employing digital tracking to prevent re-export to the United States. It's not clear how attractive this would be to Chinese firms, however. For now, as long as Trump's tariffs persist, Chinese automakers will avoid Mexico, even while U.S. companies look to expand domestic production amid higher consumer costs. More broadly, the EV market will continue to fracture, with Chinese manufacturers dominating emerging markets while U.S., Japanese, and Korean brands solidify their positions in North America, and Europe remains contested. BYD's withdrawal underscores that geopolitical strategies now define industrial development as significantly as traditional factors like cost and logistics. Until tariff uncertainties subside, Mexico's role in global EV production remains vulnerable to political shifts, reaffirming that global business decisions increasingly hinge upon geopolitical landscapes rather than economics alone.
Business Times
02-05-2025
- Automotive
- Business Times
Lured by Thailand perks, China's EV makers face reality check
IT'S HARD to miss the aggressiveness of Chinese automakers in the Thai market on the drive from Suvarnabhumi Airport into Bangkok: huge billboards featuring BYD, Changan Auto, GAC, Great Wall Motor, SAIC MG and many other Chinese brands line the highways and roads. And on the streets of the capital, Chinese car dealerships are often located steps away from the long-established showrooms of Japanese brands like Toyota and Honda. Thai consumers now have more choices than ever and at attractive prices. This phenomenon followed a deluge of Chinese brands in the Thai market over the past three years, with at least nine automakers currently in the fray. The influx has been driven by the Thai government's offer of generous industrial subsidies for electric vehicle (EV) purchases and production. This coincided with Chinese firms looking for new markets overseas amid intensifying competition at home, and the perception that Thailand was a prospective steppingstone for their global ambitions. But the story has a caveat: The subsidy policies require Chinese carmakers to produce at least the same number of cars locally as they import, leading to a build-up of supply made at a relatively higher cost for a small market. As a result, the local auto market has now become a reflection of its larger counterpart on the Chinese mainland – saturated with competing brands and dogged by fierce price competition. At the same time, the Thai market is experiencing a downturn, with consumers hobbled by high levels of household debt. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Thailand's auto market sold 572,675 new cars in 2024 – down more than 25 per cent year-on-year – while pure EV sales accounted for fewer than 67,000 of that, according to Federation of Thai Industries (FTI) data. 'The current state of the Thai market has become a 'deep red ocean,'' said Shi Qingke, president of Great Wall Motor International. Unseating the Japanese For decades, the kingdom has been the undisputed playground of Japanese automakers. But Chinese rivals have been catching up fast with new models, and even getting creative to gain market share. At the Bangkok International Motor Show in April, Great Wall Motor placed a smashed-up vehicle front and centre in its booth to show its cabin remained intact after the driver wrapped the car around a utility pole at high speed. Another Chinese brand displayed its latest model clad in a bright pink cartoon design alongside a giant teddy bear to attract young consumers. The result of these tactics: Almost every car displayed at the booths of Chinese brands – including Great Wall Motor, SAIC MG and Changan's Deepal – was surrounded by people. In contrast, the booths of Japanese and South Korean automakers like Mazda and Kia had few visitors, with numerous salespeople waiting idly with brochures. On the list of top 10 brands by order volume at the show, Chinese brands occupied half the spots. BYD secured the top position with five-digit orders, decisively outselling Japan's Toyota Motor, a titan that had cultivated the market for generations. Auto industry experts believe this was more than just a minor upset: it was a declaration that a new era has dawned. The shift didn't happen overnight, but it accelerated over the past few years. Spurred by Thailand's generous new-energy vehicle (NEV) subsidy policies implemented from 2022, Chinese automakers like BYD and Neta Auto were early movers. They were quickly followed by state-owned giants including Guangzhou Automobile Group and Chongqing Changan Automobile and Chery Automobile. At least 16 Chinese marques are now vying for a share of the local market, turning Bangkok's streets into a showcase of China's automotive ambitions. Their primary weapon in this offensive is a combination of advanced technology and aggressive pricing. Chinese entrants flooded the market with EVs boasting features previously reserved for luxury segments – full LCD dashboards, smart infotainment systems, sleek designs and rapid charging capabilities. Coupled with deep discounts, like BYD slashing nearly 40 per cent off its Dolphin model's initial launch price over the past two years, the value proposition became hard for Thai consumers to ignore. The impact on the incumbents has been palpable. Japanese automaker Honda Motor, once a comfortable third in show orders, found itself eclipsed not only by BYD but also GAC and Changan. A total of 41 car manufacturers from around the world participated in the show. Industry insiders noted a stark difference, with some suggesting Japanese models often feel 'two generations behind' in terms of standard features compared with their Chinese rivals, forcing a long-overdue reckoning for the established players in this crucial Southeast Asian battleground. Toyota, despite retaining an overall market share as high as 38.5 per cent, saw its sales slide 17.1 per cent year-on-year in 2024 to 220,000 vehicles. To counter the competition, Toyota in December announced a major investment plan, injecting 55 billion baht (S$2.15 billion) to expand hybrid vehicle production capacity, aiming to further consolidate its leadership position in the market. Meanwhile, in late 2023, Honda became the first Japanese automaker to produce NEVs in the country when it began making pure electric cars at its factory in Prachinburi province in eastern Thailand. However, due to sluggish local sales, Japanese firms have been forced to cut local production capacity. In July last year, Honda announced it would cease car production at its factory in Ayutthaya province by 2025, consolidating capacity at the Prachinburi site. Prior to this, Japanese automakers Suzuki and Subaru also announced the closure of their Thai factories. Spoiled for choice For Thai consumers, the flood of Chinese firms has also created a shift in local preference for NEVs, and within just a few years, the NEV market has become a veritable Chinese buffet. Chinese EV brands have aggressively targeted the market with feature-rich EVs at price points that challenge the status quo. Consumers previously choosing a mid-range Japanese sedan are now finding they can afford an EV boasting large touchscreens, sophisticated driver-assistance systems, and eye-catching designs, further enhanced by significant discounts and government subsidies that make the switch even more tempting. Many Chinese brands' value-for-money models – priced at around 600,000 to 700,000 baht – now come standard with full LCD instrument panels and smart systems, not just high-end models, according to a source at SAIC MG. In contrast, Japanese cars priced over 1 million Thai baht often still feature small control screens and all-plastic interiors, the source added. Beyond the initial sticker price and flashy tech, EVs also appeal to consumers for being cheaper to run. Liming, a Chinese national and long-term resident of Thailand, said charging his electric car at home costs roughly 80 per cent less per kilometer than fueling a comparable gasoline vehicle. 'Although gasoline prices in Thailand are slightly lower than in China, the cost per kilometer for a gasoline car is about 0.8 to 1 yuan (S$0.14 to S$0.18). My electric car costs about 0.8 yuan per kilowatt-hour to charge, which works out to less than 0.2 yuan per kilometer,' Liming said. Wang Haoyong, head of GAC International South-east Asia, said that EVs also have annual maintenance costs that are over 50 per cent lower due to the absence of requirements like engine oil and transmission fluid replacements. In Thailand, where temperatures are always hot, EVs also don't suffer from range issues caused by low temperatures reducing the efficiency of lithium-ion batteries. This combination of factors is resonating. The market share for pure EVs continued to climb last year, reaching nearly 12 per cent overall and significantly higher within the passenger car segment. Chinese brands commanded an overwhelming 80 per cent slice of that pie and they are actively building momentum in this shift to electric. GAC International, for example, plans to build an intercity charging network centred around Bangkok, constructing 25 new charging stations this year. Perils of subsidised growth The current state of Thailand's auto industry is largely the result of a bold ambition harbored by the government: to transform itself into the EV production hub of South-east Asia. To kickstart this vision, Bangkok rolled out subsidy packages, starting with 'EV3.0' in June 2022 and its successor 'EV3.5', offering purchase incentives, consumption tax cuts and reduced import tariffs. Perks under 'EV3.0' include reducing the NEV consumption tax from 8 per cent to 2 per cent, providing subsidies of up to 150,000 Thai baht per vehicle for pure electric cars priced below 2 million baht, and reducing import tariffs on pre-built vehicles by up to 40 percentage points. This attracted a wave of investment, predominantly from Chinese automakers eager to establish a foothold and capitalise on the incentives. However, this government generosity came with a significant string attached – a mandatory local production requirement. Automakers benefiting from the subsidies, particularly under EV3.0, had to commit to producing EVs in Thailand equivalent to, or even exceeding, the number of vehicles they imported under the scheme. This seemingly logical policy, designed to build domestic capacity, appears to have moved faster than the market and set the stage for a potential crisis of oversupply. The numbers paint a stark picture. Collectively, the major Chinese players like BYD, Changan, Chery, GAC, Great Wall Motor, Neta and SAIC-CP Motor (a joint venture between SAIC Motor and Thailand's Charoen Pokphand Group), are building or operating factories with a combined potential annual capacity exceeding 550,000 vehicles. Yet, new car sales in Thailand totaled just 572,000 units in 2024, a 26.2 per cent drop year-on-year, FTI data show. As the Electric Vehicle Association of Thailand's president Yossapong Laoonual noted, capacity already 'far exceeds local market demand'. Facing the obligation to produce locally into a shrinking, saturated market, intense price wars have erupted. Automakers are under pressure to clear inventory built to meet production quotas, often at thinning margins. They are also grappling with the reality that manufacturing in Thailand is more expensive than in China. The struggle is exemplified by firms such as EV startup Neta, which is facing financial headwinds domestically while under pressure to meet Thai production targets or risk facing hefty penalties. Newer Chinese automotive entrants – such as XPeng and Zhejiang Geely Holding's EV brand Zeekr – have opted for exporting fully built vehicles to minimise high upfront local investment. A Zeekr representative in Thailand said that while local production could make the brand more competitive, the company is sticking with vehicle exports in the short term to maintain flexibility. Stepping stone doubts But for many of the Chinese automakers that flooded into Thailand, the strategy extended beyond simply capturing local market share. The country, with its established automotive infrastructure and strategic location, was envisioned by many as a springboard – a potential manufacturing and export hub to penetrate the wider South-east Asian region and potentially hedge against trade barriers in Western markets. Great Wall Motor has already begun exporting Thai-made vehicles to neighboring countries like Vietnam and Indonesia. The rationale seems compelling on the surface. Establishing production bases in South-east Asia could offer preferential access to member markets, provide a diversification strategy away from US or European Union tariffs on China-made goods, and offer a release valve for the intense overcapacity plaguing the Chinese domestic market. However, the dream of Thailand as a seamless stepping stone into South-east Asia appears increasingly challenging, hindered by local supply-side issues, while bumping against regional complexities. Most fundamental is cost competitiveness: manufacturing EVs in Thailand is around 20 per cent more expensive than in China, the head of a Chinese automaker's Thai factory told Caixin, eroding a key advantage. 'For Japanese automakers, producing in Thailand is much cheaper than producing in Japan, so they can naturally use Thailand as a production base,' said a source at SAIC MG. But as one auto industry insider lamented: 'Frankly speaking, nowhere in the world is cheaper or more efficient than manufacturing in China.' Moreover, regional giants like Indonesia, South-east Asia's largest auto market, are aggressively pursuing their own EV industrial policies, directly competing for investment from the very same Chinese companies. Indonesia's local rules and tax incentives also favor domestic production, potentially fragmenting rather than consolidating regional manufacturing strategies. CAIXIN GLOBAL
