Supply Chain Matters highlights concerns raised by automotive industry interests regarding evolving component sourcing among China based suppliers within Mexico.

Tesla’s Planned Mexico Production Complex

In a published blog commentary almost a year ago, Supply Chain Matters highlighted Tesla CEO Elon Musk’s confirmation of this EV automaker’s planned investment in a new production facility to be located in Monterrey, Mexico.

This facility was reportedly aimed to produce the termed Tesla next-generation EV vehicle. News reports at the time had further cited Mexican government officials indicating that upwards of a $5 billion initial investment were planned: “for the installation of the largest electric vehicle plant in the world.” At the time, Nuevo Leon Governor Samuel Garcia later indicated that this facility would likely include a $5 billion additional investment in a subsequent expansion phase.

The latest twist comes from a recently published report by Bloomberg, citing knowledgeable sources, and indicating that Telsa is encouraging suppliers at the existing Shanghai production complex to set up production operations in Mexico to be able to eventually support the new Monterrey facility.

The report notes that electric vehicles assembled in Mexico can qualify for U.S. buyer tax incentives if the producer adheres to both the tenets of the USMCA trade agreement along with added defined limits incorporated in the U.S. Inflation Reduction Act passed in 2022. The latter specifies the amount of battery materials that have been sourced from stated “foreign entities of concern” or firms with ties to rival countries such as China as a criteria for consumer tax credit in buying such vehicles.

Reportedly, key China based component suppliers are setting up corporate entities with the assistance of U.S. tax lawyers to identify a path to circumvent any foreign entity concerns. The report specifically cites data from Mexico’s national auto parts industry association indicating that the value of Chinese auto parts produced in Mexico and exported to the U.S. reached $1.1 billion last year. Reportedly, 33 Chinese parts suppliers were registered in Mexico, 18 of which exported parts to the United States.

BYD Sets Sights on China

BYD, a direct competitor to Tesla, was recently recognized as being the globe’s top producer of electric powered automobiles and vehicles.

The Wall Street Journal has now reported that BYD has set its sights on Mexico as a likely path for expansion into the North American market.

The report: To Avoid Hefty Tariffs, China’s BYD Eyes U.S. Car Market Via Mexico (Paid subscription), indicates that CEO’s at rival automakers continue to warn of the potential competitive threats of China based producers in terms of availability of commodity supply and of production cost efficiencies. Stellantis CEO Carlos Tavares reportedly likened the potential U.S. market entry to that of Japanese automakers on the 1970’s and South Korea based makers in the 1990’s. Tesla CEO Elon Musk himself recently acknowledged at an investor gathering that China based auto producers are now the “most competitive” in the world.

The report cautions that BYD has not formalized any specific plans regarding Mexico, at least a dozen China based component producers have already announced their factory presence.

Added Thoughts

Supply chain sourcing decisions often stem from a number of business considerations that can include access to a major new market, leveraging or overcoming global trade and tariff restrictions, or following the influence of a major OEM customer.

What appears to be in the making in a major year for Presidential elections in the U.S., Mexico and many other nations are the increased forces in protecting market access, consequential jobs and overall domestic industry based competitiveness.

This political dimension cannot be ignored by industry sourcing and procurement leaders and is increasingly ever more consequential as domestic industrial policies spillover into industry consequences.

Watching this evolving industry segment is prudent since history would indicate that this political dimension influences other moves and consequences, beyond that of automotive.


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