BYD, a Chinese electric vehicle (EV) manufacturer, has halted plans for a factory in Mexico due to geopolitical tensions and uncertainties in trade policy.

Despite this, the company aims to expand its operations in the Americas, according to Executive Vice President Stella Li.

In Bahia, Brazil, during the launch of BYD’s first factory outside Asia, Li discussed the influence of geopolitical issues on the automotive sector.

“Now everybody is rethinking their strategy in other countries. We want to wait for more clarity before making our decision,” she said.

BYD had been considering three potential sites in Mexico but paused efforts in 2024, pending the outcome of the US presidential election.

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🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ The fragmentation of once-integrated automotive supply chains

BYD’s hesitation to proceed with Mexican factory plans reflects a fundamental shift in the North American automotive landscape that has been decades in the making.

Since NAFTA’s implementation in 1994, vehicle manufacturing had become deeply integrated across borders, with 38% of the value in Mexican-produced vehicles sold in the US actually originating from US suppliers 1.

This integration created efficiencies that helped North America produce 16.9 million light vehicles in 2018, but is now being unwound as tariffs disrupt established supply networks 1.

The impact extends beyond Chinese manufacturers. For instance, US-based General Motors recently announced a $4 billion plan to shift production from Mexico back to the US in response to tariff threats.

This reverses a 30-year trend toward regional integration, potentially increasing production costs and forcing companies to duplicate manufacturing capabilities across markets.

2️⃣ The transformation of EV competition into geopolitical rivalry

BYD’s retreat from Mexico highlights how electric vehicles have become the new battleground in global trade politics, with major implications for manufacturers.

BYD recently surpassed Tesla as the world’s largest EV seller (530,000 vs 485,000 units in Q4 2023), demonstrating China’s rising dominance in the sector after years of government support exceeding $28 billion in subsidies and tax breaks 2.

In response, the US increased tariffs on Chinese EVs from 25% to 100% in May 2024, while the EU imposed anti-subsidy duties up to 37.6% and Canada matched the US with 100% tariffs, creating a coordinated response that effectively blocks direct exports from China 3.

The tariff barriers explain why BYD, despite having a vertically integrated supply chain that enables competitive pricing, finds Mexico less attractive as a manufacturing base when access to the US market remains uncertain.

This pattern of rising trade restrictions specifically targeting Chinese EVs reflects broader concerns about China’s dominant position in battery supply chains, where it controls 75% of global lithium-ion battery production 2.

3️⃣ Automotive industry facing unprecedented strategic uncertainty

BYD’s decision to shelve expansion plans demonstrates how trade uncertainty is forcing the entire automotive sector into a defensive posture despite strong growth potential.

A survey by the American Chamber of Commerce found that 80.5% of automotive industry respondents are affected by US tariffs, with 75% simultaneously impacted by Chinese tariffs – the highest percentage of any industry group 4.

This dual pressure has created a paralyzing effect on strategic planning, with over 60% of surveyed companies considering relocating manufacturing outside both the US and China to navigate the complex trade environment 4.

The economic stakes are enormous. Tariffs are estimated to increase production costs by an average of $190 per vehicle, while potentially reducing US vehicle sales by 2 million units and threatening over 700,000 jobs in the sector 5.

For consumers, the uncertainty could mean price increases of up to $6,400 on a $30,000 vehicle as manufacturers pass along tariff costs, demonstrating how geopolitical tensions directly impact affordability 5.

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