The Mexican automotive market has become increasingly attractive to the Chinese industry. This interest is due to a variety of commercial and technological factors, as well as the competitive quality and pricing of Chinese brands. These factors have allowed Chinese brands to challenge the dominance that American firms previously held in the Mexican market, according to various statistics, officials, and industry experts.
There are currently 13 automotive firms of Chinese origin operating in Mexico, with another seven expected to arrive. These firms focus solely on meeting the demands of the domestic market, rather than exporting their vehicles.
Recent data from the National Institute of Statistics and Geography (Inegi) and the Mexican Association of Automotive Distributors (AMDA), reveals that in January, two out of every ten cars sold in Mexico were imported from China. This is noteworthy considering that out of the 37 automotive brands present in Mexico, only seven are Chinese.
Ignacio Martínez Cortés, coordinator of the Analysis Laboratory in Commerce, Economy and Business (Lacen) from UNAM, noted that the Chinese are keenly interested in the Mexican market due to its size and potential. This interest is evident in the consumption of Chinese automotive products, vehicles and auto parts in Mexico.
Although there are 13 Chinese automotive firms operating in Mexico that import cars manufactured in China, the Mexican Association of the Automotive Industry (AMIA) has only accepted four. It is currently in talks to accept three more, according to an executive closely associated with the organization.
China’s interest in the Mexican market extends beyond selling vehicles. They are also interested in selling auto parts.
Statistics from the National Auto Parts Industry (INA) show that between 2006 and November 2023, 33 Chinese companies have been established in Mexico. These companies manufacture vehicle parts and export them to the US market under the rules of the Mexico, United States and Canada Treaty (T-MEC).
The contribution of these companies to the vehicle parts industry accounted for 4% during the same period.
Data from the INA shows that the export of auto parts to the United States from Chinese firms established in Mexico amounted to 1.83 million dollars between January and October 2023. This represents a 15% increase compared to the same period in 2022.
These exports accounted for 1.7% of the total auto parts exports to the United States in the first ten months of 2023.
“China is overwhelming the United States in the industry that has been modified by technological change, which is the automotive industry,” Martinez Cortés explained.
In an interview with The Conference, an industry insider acknowledged that China has “the perfect setting for its automotive production” due to its competitive pricing, quality products, advanced technology and efficient delivery.
The insider explained that Mexican manufacturers have inadvertently contributed to this situation. They have failed to offer models with sophisticated features or competitive pricing.
“With the arrival of Chinese cars in Mexico, the notion that Chinese products are of inferior quality has been debunked,” declared Martinez Cortes.
He recalled that China established the foundations of its automotive industry between 2003 and 2008. However, since 2023, it has ushered in “a new generation that meets three conditions: technology, design and most importantly, a new quality standard”.
The industry insider noted that the Chinese vehicles entering the market – particularly the hybrid and electric models – are competitively priced.
“This is tied to their production capacity. Many manufacturers may argue that there is undervaluation (importing products with a value lower than their actual cost) or that production is subsidized. However, Chinese firms utilize robotics and technology that was transferred to them by assembly companies that established operations in China,” he explained.
“They make use of their surplus production capacity, as well as their control over materials – such as rare earths for chip production – and raw materials for battery production.”
According to the Lacen coordinator, China has also gained an advantage in logistics. They dominate the port of Lázaro Cárdenas in Michoacán, which has compelled other firms to seek alternative distribution channels.
In contrast, logistics for the domestic industry is more costly. Furthermore, as part of the origin rules in the T-MEC, it was agreed that 75% of the content must be regional and wages must be 16 dollars per hour. However, these costs can be offset.
An automotive industry source pointed out that intermediaries or car dealerships contribute to the higher cost of cars produced in Mexico or North America. They seek to earn a commission of up to 40% on sales.
On the other hand, companies like BYD have chosen to establish operations in department stores. This innovative approach could potentially boost sales for domestic manufacturers.
Competitive
“The main winner in all of this is the consumer. For instance, the MG One from MG is priced at 485 thousand pesos, while a Nivus from German brand Volkswagen costs 489 thousand pesos and a Seltos from Korean brand Kia is priced at 512 thousand pesos,” noted the industry source.
“To improve sales, our local segment will need to offer more flexible and accessible credit options. Dealers and distributors will need to reduce their profit margins and adopt smarter growth strategies,” he added.
No sanctions
“China has tremendous opportunities in Mexico. They can import cars for the domestic market and sell auto parts in Mexico or the United States. They can also produce auto parts in Mexico for local and export markets,” Martinez Cortés emphasized.
He added that while accusations of undervaluation are not out of the question, there must be a formal complaint from a company or trade group. “In both cases, there must be evidence of unfair practices. However, no such evidence currently exists,” he stated.
He pointed out that under the stringent rules of the T-MEC, the United States cannot impose sanctions on Mexico for importing Chinese cars, as these are intended for local consumption.
