Will China drive its electric cars in from Mexico?
Monterrey, Mexico Outside this city, 150 miles south of the Texas border and in the shadow of the Sierra de Santa Catarina, is a cactus-dotted field. If all goes well, this unassuming site will be home to Tesla’s Giga Mexico, which could become the world’s largest electric-vehicle factory. The project promises thousands of jobs and as much as $15 billion in investment from Tesla and its suppliers.
It is also catching the attention of Chinese competitors. Mexico’s second-largest metropolitan area is seeing a near-shoring boom because of its proximity to the U.S., competitive labor costs and the U.S.-Mexico-Canada Agreement, or USMCA. The vacancy rate for industrial real estate is just over 1% and total capacity is up 40% since 2020.
But easy access to the American market hasn’t brought only U.S. and other Western companies like Tesla and Unilever. It’s also attracting Chinese businesses like Hisense and Yanfeng.
Thanks to the Trump administration, the USMCA carries important protections against China’s unfair economic practices, including an opt-out clause if any party concludes a trade agreement with a “nonmarket economy," as well as regional content rules requiring that a car and its components come substantially from USMCA member countries. But Beijing’s heavy state investment in its EV industry could enable Chinese companies to exploit gaps in the current rules. Imported Chinese cars already make up 20% of Mexican auto sales, and Chinese sales are growing rapidly after the Mexican government suspended tariffs on EVs through September.
But the real prize for Chinese companies is to the north—last year, almost 12 times as many light vehicles were sold in the U.S. as in the Mexican market. From Monterrey, Chinese
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