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- Chinese auto-part makers are establishing a presence in Mexico to supply Tesla's new factory there.
- Elon Musk invited the suppliers to Mexico as part of plans for cheaper Teslas, Bloomberg reported.
- That move could be stoking concerns among US officials and EV makers over China's influence.
Chinese auto-part makers are setting up shop in Monterrey, Mexico, to supply Tesla's upcoming factory in the country — and it's feeding into concerns among US officials over China's influence over EV production lines.
The move comes after Tesla CEO Elon Musk invited Chinese suppliers to Mexico, sources familiar with the matter told Bloomberg, in an effort to recreate the network that supplies Tesla's Shanghai plant. It appears to be part of the US-based automotive giant's plans to make a cheaper electric vehicle at a new Tesla factory being built in the northern Mexican state of Nuevo Leon.
Tesla's plant in Austin and other US automakers' factories also import Chinese-owned Mexican-made parts, Bloomberg reported.
Using Chinese and Mexican supplies may be less costly for Tesla than US equivalents. China has a "highly organized, highly efficient supply chain," Venkatesh Prasad, chief innovation officer at the Center for Automotive Research, told Bloomberg. "No manufacturer anywhere in the world is going to miss the opportunity to include that as part of their value proposition as they try to manage margins."
Tesla didn't immediately respond to a request for comment from Business Insider before publication.
Still, China's growing presence in Mexico's EV manufacturing industry may be one tactic Beijing is using to circumvent Trump-era tariffs that make it harder for manufacturers to export goods directly into the US. That may stoke greater worries among Washington, DC, officials who have previously expressed concerns over China's influence.
Last November, members of the House Select Committee on the Chinese Communist Party wrote to US Trade Rep. Ambassador Katherine Tai urging her to take on Chinese manufacturers "preparing to flood the United States and global markets with automobiles, particularly electric vehicles" backed by "massive subsidies." In response, Tai wrote that the Biden administration is devising plans to make current trade restrictions "more strategic."
EVs assembled in Mexico can currently qualify for a US consumer tax credit of as much as $7,500, though they must stick to limits on battery materials coming from "foreign entities of concern" — businesses with ties to China and other rival countries. There is currently a 25% US import tariff on Chinese vehicles.
Tesla, which also makes cars in the US, and other US-based EV makers may also be feeling the heat from competitors. On Wednesday, China's BYD, a carmaker known for its cheaper EV models, told Nikkei that it's considering opening a plant in Mexico with the goal of establishing an export hub to the US.
Tesla's Musk warned investors in a January earnings call that Chinese EV firms will "demolish" their Western rivals if trade barriers aren't put in place to limit their expansion. BYD overtook Tesla earlier in 2024 to be the world's top seller of electric cars.
Even though China's perceived threat to the US economy may be top of mind for business and government leaders, some policy experts believe it's best for the US to maintain a good relationship with its rival.
"If there isn't Chinese involvement, how do we keep the industry competitive? Mary Lovely, a senior fellow at the Peterson Institute for International Economics, told Bloomberg. "If we try to produce everything at US wages, we'll end up with a vehicle that can't compete in any sense."