While the United States is making headline news about new tariffs, México is quietly imposing its own tariffs on select business sectors. In 2024, México was the largest source of automobiles imported into the US, accounting for about 23% of the almost $220 billion car import market. Japan was second, followed by South Korea and Japan. Worldwide, China was one of the top three countries exporting cars across the globe.
But in 2024, a new car market exploded, the electric vehicle market. Last year, almost 20% of all the cars sold were electric. It is expected to increase to 40% by 2030. China took the lead for electric cars even though high tariffs have kept them off the US and European markets. Chinese electric vehicle manufacturer, Build Your Dreams (BYD) manufactured almost 2 million battery-only electric vehicles last year. BYD’s three largest export markets are Brazil, México and Belgium.
Tesla is the second largest EV manufacturer, after BYD overtook it last year. Tesla, which has a manufacturing facility in Shanghai China exports to the Asia-Pacific markets, as well as to Europe and the Middle East. Tesla also exports to México from its Chinese manufacturing plant, and from its facilities in India and Malaysia. In 2023 Tesla started building a facility in Nuevo León, México, but halted construction last year before the election of Donald Trump.
Since the election, there has been little movement towards completing the $4.5 billion manufacturing plant. The Tesla plant was originally planned for selling automobiles to the North American market.
Mexican President Claudia Sheinbaum responded to Tesla’s pause in its EV plant in México by pledging support of an indigenous designed and built Mexican EV – the Olinia.
The Olinia Challenge
The Mexican government-backed Olinia expects to start delivering electric vehicles next year for the 2026 World Cup. Consumer versions are expected to hit showrooms four years later. It is planned to be built with 100% Mexican parts and 100% in México.
But it faces obstacles in building the necessary infrastructure including the batteries necessary for EVs. Although México has lithium deposits, which are required for EV batteries, it does not yet possess the necessary infrastructure to extract it from the clay where it is embedded at a commercial scale. Other technical challenges include manufacturing facilities and engineering hurdles. Meanwhile, it appears that the Mexican government is addressing some of its challenges by both targeting Tesla while placating the Trump Administration through Chinese tariffs.
Mexican New Tariffs For Chinese Cars
Earlier this month, the Mexican government proposed new tariffs of up to 50% for automobiles from China and other Asian countries. Currently at 20%, the proposed tariff increase is to “protect jobs” in México, according to Mexican Economic Minister, Marcelo Ebrand, in announcing the new tariffs. The Mexican congress must still approve the increase in import taxes. The Chinese government responded by stating that China hopes México “will be extremely cautious and think twice before acting.”
On Friday, the Chinese government announced it has begun investigating Mexican exports to China in response. Sheinbaum responded that México is seeking to protect jobs in the country and that México and China “have a very good relationship,” and that her government wishes “to keep having a good relationship” with China.
Although the Trump Administration has not addressed the proposed Mexican tariffs on Chinese cars, the tariffs are seen as an alignment with US trade policies with China.
Behind the scenes, Canada, México and the US have begun preparing for the joint review of the United States-Mexico-Canada-Agreement (USMCA) scheduled for next year. At the forefront of the review are automobiles, followed by supply chain security and labor issues. Trump signed the USMCA, an update to the North American Free Trade Agreement (NAFTA), during his first term.
China heavily subsidizes its manufacturing sectors making it very dependent on exports to foreign markets. When markets begin to close it leads to Chinese overcapacity where it manufactures more than it can sell.
The larger context is México’s investment in Olinia, Tesla’s pause in its $4.5 billion investment in México and China’s overcapacity problems.
Telsa, which accounts for around 10% of the Mexican EV market, will face higher tariffs if the Mexican congress enacts the proposed tariffs for Chinese cars. This is because it manufactures the low-cost EVs preferred in the Mexican market in China. Although Tesla also exports from India, México does not have a free trade agreement with it. As for Malaysia, where Tesla also builds cars, Malaysia benefits from the Trans-Pacific Partnership agreement. But Malaysia’s largest exports to México do not include automobiles.
