A Trade Workaround? China’s Auto Parts Suppliers Set Up in Mexico

by Carolyn Mathas

China has joined the many companies setting up auto parts facilities in Mexico. According to a recent Bloomberg News article, China is setting up shop to help Tesla and other auto manufacturers have access to auto parts for vehicles bought in the U.S.

In 2023, the value of auto parts made in Mexico by China was up 15% over the previous year. Elon Musk invited Chinese suppliers to open in Mexico and replicate the local supply chain at the Shanghai Gigafactory.

According to the article, EVs assembled in Mexico can qualify for a U.S. tax credit of up to $7,500 under the Inflation Reduction Act if they meet the strict limits on battery materials from “foreign entities of concern” or firms with ties to rivals, including China. So, if no battery minerals or components come from China, there’s no problem with receiving the credit.

The request by Musk did not start the auto parts movement to Mexico; that began under the Trump administration in response to tariffs. Now, however, Musk can build a cheaper next-gen EV in Nuevo Leon, Mexico, receiving $153 million in local incentives.

Automakers are pretty much mum on the topic because they have interests on both sides—adhering to U.S. regulations and interests in China. Canadian auto parts manufacturers and the United Auto Workers (UAW) have both expressed concerns regarding the dramatic increase of China’s Mexican efforts as a ploy to avoid U.S. trade policy. The Biden administration is considering restricting Chinese smart cars no matter where they are assembled.

This is a very serious global trade situation. Too much protectionism from the U.S. may push the EV price tag too high. Involvement by all keeps the industry competitive. It will be interesting to see what falls out of the situation in the near term.

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