Behind a crumbling brick wall in a working-class neighborhood of Mexico City lurks a seemingly innocuous car lot. But it could be a sign of a potentially grave threat to the North American auto industry.
A makeshift dealership for the Chinese electric vehicle company BYD has sprung up in this dusty lot. Esteban Alegría, an employee, said the dealership was selling cars as fast as they arrived from China. Mr. Alegría’s top seller is the Dolphin Mini, a small but capable four-door electric compact that costs about $18,000, about $10,000 less than the cheapest battery-powered vehicle available in the United States.
Mr. Alegría’s dealership is one of dozens that Chinese carmakers like BYD, Chery, Geely and SAIC are opening up around Mexico as they establish a foothold in North America.
Chinese carmakers are effectively barred from the United States by tariffs that double the sticker price of vehicles imported from China, and they are not yet manufacturing significant numbers of vehicles in Mexico that could be exported across the border.
But their ambition to expand overseas is on vivid display in Mexico and across Latin America, Asia, Europe and Africa. Ads for Chinese brands are in airports and soccer stadiums and loom above Mexico City streets on large billboards. Chinese cars, both gasoline and electric models, are an increasingly common sight.
BYD and others are also looking for places to build factories in Mexico, although none have announced firm plans. Initially, the plants would serve Latin America, part of a campaign by Chinese automakers to erode the dominance of Japanese, American and European carmakers in places like Brazil and Thailand.
But there is little doubt that, eventually, Chinese carmakers hope to use Mexico as an on-ramp to the United States.
“Maybe next year BYD can enter the United States,” Mr. Alegría said optimistically, as salsa music blared from a speaker hung on a pole and two men washed the dust from a newly arrived Dolphin. Nearby, workers mortared a cinder block wall, part of a new building that will replace the one-room sales office made of rough bricks topped by a corrugated metal roof.
“If not,” Mr. Alegría added, with a smile, “I can deliver.”
It is very unlikely that the Dolphin or any other Chinese car brand will be available in the United States soon. Because of the high tariffs, Chinese carmakers have not tried to establish dealerships or get approval from federal regulators to sell in the United States. (BYD does make electric buses in California.)
And someone buying a BYD from a Mexican dealer like Mr. Alegría would have a hard time registering and insuring it in the United States because the cars have not demonstrated that they meet safety standards.
President Biden and President-elect Donald J. Trump have been emphatic about wanting to keep Chinese automakers out of the United States, well aware of the threat they pose to U.S. car and auto parts factories that employ a million workers.
Mr. Trump has threatened 25 percent tariffs on all Mexican products, including cars. Mr. Biden has pursued policies aimed at fending off the challenge from China, including subsidies for U.S. battery factories. The Chinese government has long subsidized carmakers with the goal of becoming a major auto exporter.
But in the years to come it may be difficult to explain to consumers in the United States why they’re not allowed to buy inexpensive electric vehicles that are readily available across the border, especially if they’re made in Mexico, which already manufactures millions of cars for the United States.
Less than 20 years ago, Chinese cars were widely seen as inferior, even by many Chinese drivers. But in recent years, the country’s manufacturers have pulled even with foreign rivals in mechanical quality, analysts say, and often surpass U.S., Japanese and European carmakers in battery technology, autonomous driving and entertainment software. (Think in-car karaoke and rotating touch screens.)
Chinese carmakers have clawed significant market share domestically from once-dominant companies like Volkswagen. Even Tesla, which has a large factory in Shanghai, has lost ground to BYD and other Chinese carmakers. Elon Musk, Tesla’s chief executive, will be in a position to influence U.S. auto and China policy after spending more than $250 million to support the Trump campaign and becoming a close adviser to the president-elect.
“Before the pandemic, the rules were set down by the Western carmakers,” said Felipe Munoz, global analyst at JATO Dynamics, a research firm. “Now it’s the opposite.”
Representatives of several Chinese carmakers declined to comment or did not respond to requests for comment. Jorge Vallejo, BYD’s director general for Mexico, agreed to an interview but canceled abruptly as New York Times reporters waited outside his office in Mexico City. The company’s representative declined to reschedule or make other executives available.
China’s car market is the world’s largest by far, and the growing prowess of domestic producers is having far-reaching effects. General Motors said on Wednesday that it would take a more than $5 billion hit to its profit as it restructured its operations in China, which have been losing money in recent years.
Mary T. Barra, G.M.’s chief executive, acknowledged the price pressure from Chinese carmakers during an interview in October. “We’ll continue to look at smart ways to take cost out,” she said, while insisting that the company could still compete with China.
Arno Antlitz, the chief financial officer of Volkswagen, noted that the industry had dealt with new competitors before, including Japanese carmakers in the 1970s and South Korean carmakers in recent decades. “We think we have a competitive setup,” he said in an interview in October.
Still, the auto industry does not appear to have seen anything like the current wave of Chinese brands, which have quickly overtaken Japanese companies as the world’s largest auto exporters.
Chinese carmakers have made deep inroads in countries where they have local production or face few significant trade barriers. In Brazil, Chinese brands have a 9 percent share of car sales, up from 1 percent in 2019. In Thailand, they have 18 percent of the market, up from 5 percent in 2019, according to JATO.
In Mexico, Chinese brands now account for 9 percent of new car sales, up from effectively nothing five years ago.
“They gained market share when other brands didn’t have inventory and there were long waits to get cars in Mexico,” said Guillermo Rosales Zárate, president of the Mexican Association of Automobile Distributors.
In San Luis Potosí, an industrial hub 250 miles north of Mexico City, BYD models are taking customers from Toyota, said Fernando López, manager of a dealership that sells both brands from a showroom in an upscale neighborhood.
BYD’s Shark pickup, a $45,000 plug-in hybrid, is poaching buyers from the Toyota Tacoma, he said, while the BYD Song, a $30,000 plug-in S.U.V., is luring customers from the Toyota RAV4. The Chinese models cost $10,000 less than the comparable Toyotas.
“I don’t know if people are going to let them sell in the United States,” Mr. López said, referring to BYD, “but they can compete with any brand.”
Mexico is the world’s seventh-largest auto producer, just behind South Korea and Germany. Most major carmakers have factories in Mexico, including G.M., Ford Motor, Stellantis and Volkswagen. Many use parts from Chinese companies like Minghua, which produces bumpers and other components from a plant next to a large BMW factory outside San Luis Potosí.
Almost 80 percent of vehicles produced in Mexico, more than two million through September, went to the United States, according to the Mexican Automotive Industry Association.
Although U.S. tariffs on cars made in China are high, in theory Chinese cars made in Mexico and exported north of the border would currently have to pay a maximum tariff of just 2.5 percent.
But the United States would probably put pressure on the Mexican government to erect barriers to Chinese automakers. Mexico’s new president, Claudia Sheinbaum, has played down talk of a BYD factory in Mexico and emphasized that relations with the United States are the government’s top priority.
Mexico is “so economically tied to the U.S., at the end of the day this is a straightforward calculation,” said Joshua Meltzer, a senior fellow at the Brookings Institution who focuses on international economic relations. In October, the Mexican government raised the tariff on imported cars to 20 percent from 15 percent, in what was widely seen as a reaction to growing sales of Chinese vehicles.
The threat from China will grow as electric vehicles become more popular. Those cars already account for half of all new cars in China, giving the country’s carmakers a head start.
Auto executives expect electric vehicles to eventually supplant gasoline and diesel models even if Mr. Trump removes financial incentives for such cars and trucks. G.M., Hyundai, Mercedes-Benz and others have staked billions of dollars on electric-car and battery factories.
In Mexico, electric vehicles account for less than 2 percent of new car sales, but have grown more than 40 percent this year despite a dearth of public chargers. Electric vehicles in Mexico City are exempt from restrictions that apply to gasoline and diesel vehicles on days when air pollution is very bad.
That helps the Dolphin Mini, said Daniela Alvarez, a saleswoman at another BYD dealership squeezed into a storefront beneath a Mexico City parking garage.
Ms. Alvarez rattled off the Dolphin’s technical specifications, including its advanced battery technology, rotating video display and four airbags. While Chinese electric vehicles still cost more than gasoline models, she said, they cost only 30 percent as much to fuel.
“Electricity is cheaper than gas,” she said. “You can make up the difference.”
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