Automotive companies from China are using Mexico as a back door to the U.S. market, undermining the industry in Canada and the United States, Canada’s leading supplier association warns.
“An assertive series of strategic moves by Chinese state-owned and controlled interests within the North American automotive market through Mexico … threaten to displace market-driven industry players,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association.
He called it a “displacement strategy by Chinese manufacturers, leveraging state ownership and control to gain significant leverage within North America over regional investors,” including some of the established auto suppliers Volpe’s association represents.
Governments, he said, aren’t doing enough to keep the new investors at bay and preserve the domestic auto sector.
“While we are sleeping, Chinese entities are positioning themselves through direct investment and market expansion in Mexico to displace market-driven players in the North American automotive market and weakening the current supply base that employs over 3 million directly in the region.”
Volpe traveled to the United States in early November to raise the issue. He attended an American Chamber of Commerce event and met with officials from the U.S. State Department as well as the Commerce, Energy and Interior departments. He also had separate meetings with two members of Congress.
A bipartisan group of U.S. lawmakers subsequently penned a letter to U.S. Trade Representative Katherine Tai encouraging her to boost the 25 percent tariff on vehicles from companies in China and investigate ways to prevent Chinese companies from exporting into the United States from Mexico.
The letter was signed by Republican Rep. Mike Gallagher of Wisconsin, who chairs a select committee on China, and that panel’s top Democrat, Raja Krishnamoorthi of Illinois. Michigan Reps. Haley Stevens and John Moolenaar, whose state is the center of North American auto production, also signed the letter in support.
The letter said that the United States “must also be prepared to address the coming wave of [Chinese] vehicles that will be exported from our other trading partners, such as Mexico, as [Chinese] automakers look to strategically establish operations outside of [China] to take advantage of preferential access to the U.S. market through our free trade agreements.”
Mexico could be one of the biggest winners from the investment wave fanned by President Joe Biden’s EV tax credits of as much as $7,500 per vehicle built in North America. The USMCA trade agreement also gives preferential tariff treatment to vehicles built mostly with North American parts.
General Motors, BMW, Ford Motor Co., Stellantis and Kia Corp. plan to expand EV production in Mexico, while Tesla Inc. is planning to build a megafactory in the northern Mexico state of Nuevo Leon.
Two Chinese suppliers for Tesla announced they will invest nearly $1 billion in the state, Nuevo Leon Gov. Samuel Garcia said in early October.
“Tesla is publicly acknowledging that they are encouraging their Chinese suppliers to invest in Mexico,” Volpe said.
The planned investments include $700 million from Ningbo Tuopu Group and $260 million from Hesai Technology, a Nuevo Leon representative said.
The presence of those companies could, in the long run, hurt Canadian suppliers, Volpe said.
The biggest Canadian suppliers, including Magna International and Linamar Corp., are also invested in Mexico. More than 60 Canadian companies operate 120 plants in Mexico, according to the Automotive Parts Manufacturers’ Association.
“They followed their customers there. They’re servicing their customers there,” Volpe said.
“If those companies now have to compete with Chinese conglomerates for the same business, they will get outbid because that’s the Chinese objective,” Volpe warned.
He said China has “a 4,000-year return-on-investment expectation” and that “quarterly results and market cap are not big concerns” for state-owned automakers. These are advantages North American automakers and their suppliers don’t have.
“They’re going global with their automotive manufacturing sector as part of their geopolitical strategy for economic leverage and dominance in markets around the world,” Volpe said.
Mexico can’t be blamed for accepting Chinese investment, he added.
“You try being the governor of a state — in any country — that says ‘no’ to $1 billion of investment and 20,000 new jobs,” he said.
A spokesperson for Canada’s Industry Minister Francois Phillippe Champagne would not comment on Volpe’s concerns.
He did tout the benefits of foreign investment in Canada, adding that the Investment Canada Act “provides for the review of the most significant investments by non-Canadians to ensure their likely net benefit to the Canadian economy, and for the review of foreign investments of any size for national security concerns.”
And the office of the U.S. Trade Representative did not respond to a request for comment from Automotive News Canada.
Volpe is undaunted.
“The North Americans need to wake up, quick,” he said. “We play like scouts in an open-market economy while our competition strategically attacks our whole market.”
Automotive News contributed to this report.