Which EV?

China Carmakers Push to Bring Affordable EVs to the U.S. Market

When it comes to cars, the United States has been the undisputed world leader in production and design for decades. That applies to both venerable internal combustion engine cars and trucks as well as clean, efficient electric vehicles. What’s more, some of the top global EV brands are made right here in America, from Tesla to General Motors.

So, it can come as a surprise to learn that the U.S. isn’t leading the pack on EV development and adoption. That title goes to China, and by a wide margin, as China’s carmakers see unprecedented success both in their domestic market and around the world.

And while EVs are still struggling to catch on in the United States, and new restrictions on imports make foreign models less appealing to American drivers, Chinese EV manufacturers know that breaking into the U.S. EV market is too good an opportunity to pass up. But to do it, they may turn to a surprising partner for help.

Obstacles for Chinese EV Manufacturers

China carmakers face a variety of stumbling blocks on the way to cashing in on the American EV market. Not least of these is the tariff on cars imported from China into the United States, set at 27.5% during the Trump administration. Such steep costs would drive up sticker prices for drivers and otherwise make any attempt to import far less profitable.

On top of that, there’s the Inflation Reduction Act of 2022. This U.S. law introduced a range of benefits for EV manufacturers to encourage drivers to adopt cleaner transportation, most notably a $7,500 tax credit on certain EV models. However, only EVs that undergo final assembly in North America qualify for the full amount, making European and Asian EV brands even less attractive to drivers.

Add to that the complexities of any high-value importation operation — think tariffs, import duties, legal and insurance fees, and many other costs and considerations — and you’ll start to get an idea of what a Chinese EV manufacturer could be up against.

China’s Ticket to the U.S. Auto Market

So, how do Chinese manufacturers plan to get around these obstacles? The simple answer is: Mexico. Mexico has long been a destination for car manufacturers who want to access North American markets while cutting labor costs.

It wasn’t always like that. Until 1992, a series of laws known as the Mexican Automotive Decrees made importing and exporting cars to and from Mexico prohibitively expensive for many. But that year, the North American Free Trade Agreement (NAFTA) came into effect, immediately eliminating tariffs on cars and other valuable goods between Canada, Mexico, and the United States. Carmakers headed south to set up factories where, even today, some of the best-loved cars on American roads get their start.

Then, in 2020, NAFTA was replaced by the United States-Mexico-Canada Agreement (USMCA). The USMCA made Mexico an even more attractive destination for car manufacturers since it allows them to import any car tax-free as long as at least 75% of its parts are built or produced in North America. This is what’s enabled companies like BMW, Honda, and Volkswagen to sell cars in the United States without paying steep tariff charges or other costs.

It’s also what China’s EV manufacturers are betting will give them an in with American drivers. By setting up operations in Mexico, Chinese EV brands like BYD and Chery hope to take advantage of the lower cost of doing business and access to the rest of North America at the same time.

Strengths and Risks for China

There’s no question that China is making great leaps in the EV industry. In 2022 alone, 4.4 million cars, or about 22% of all passenger vehicles sold in China, were electric — more than the rest of the world combined.

Add to that China’s thriving domestic lithium mining and battery manufacturing industries, and you get a group of EV manufacturers equipped with every advantage they need to impact the global automotive industry. And, with BYD, Chery, JAC, and six other major Chinese EV brands already a common sight on Mexican roads, it won’t be long before you start seeing them at a dealership near you.

But there’s no guarantee that this could come to pass. U.S. lawmakers are aware of the loophole that Chinese manufacturers hope to exploit, making carmakers hesitant to commit to expanded Mexican manufacturing operations. Just don’t be surprised if you start seeing attractive prices on Chinese brands before long.

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