China and the Latin American auto industry

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• The motor vehicle revolution

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  A simplified view of the global automobile industry in 2025 is that at least two revolutions are playing out in tandem over the next few years. One is technology-driven and involves all sorts of things that are happening inside the motor vehicle. They include the replacement of fossil fuel-burning internal combustion engines with electric power trains, and the introduction of sophisticated sensors and computer systems that enable full or partly autonomous driving. In fact, some of these changes radically challenge the entire way we think about mobility. In the not-too-distant future for example, we may see the spread of autonomous electric vertical take-off and landing (eVTOL) craft as well as driverless “robotaxis”. Giant leaps in technology are driving forward the definition of what is possible in the field of mobility.

  At the same time there is a lot going on outside the car, and not all of it positive. One of those things is a trade war. Largely because of the tariff policies of US President Donald Trump, unveiled in early 2025, the world has begun to move in a much more protectionist direction. Trump explicitly wants to bring back automobile production and jobs to the United States, using both threats and incentives to force a degree of ‘re-shoring’ (bringing back production and assembly lines to the US). The MAGA (Make America Great Again) political agenda which is influencing many leaders on the nativist right of the political spectrum, not just in the US, seems to clash directly with the automobile industry’s decades-long shift towards managing increasingly international supply chains, in a way that maximises efficient use of labour and seeks out comparative advantage.

• The global automobile industry

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  It is worth setting out some of the quantitative changes that have taken place in recent decades. In 1950 the United States played a hugely dominant role in the international automobile industry. No less than 80% of the world’s passenger cars were built in the US. Yet, as new assembly plant and manufacturing challengers emerged, that dominance waned, with the US becoming comparatively less competitive, and struggling with high labour costs. By 2010 the US share of global auto production had dropped back down to only 4.6%, falling further to 2.1% by 2021. Big inroads were meanwhile being made by Japanese and German companies which by 1990 controlled around 40% of global auto production. A wave of spectacular growth then followed from the 2010s onward, with the emergence of Chinese companies. By 2021 Chinese companies accounted for 37.5% of global production. As they took a larger share of the total market, they squeezed many of the incumbent producers. Japan and Germany’s share of world auto production for example, fell back down to 17% in 2021.

  Automobile production, selected countries, 1950-2022
  Percentage share of global car production

  Source: International Organization of Motor Vehicle Manufacturers

  This is, of course, a very simplified account. Many other factors have also been in play. One is that the US has consolidated its position as a stable, mature economy with a comparatively low rate of population growth. That meant that annual percentage growth in auto sales has come down to close to replacement demand. Despite that, the main consumption markets are still controlled by North American, Japanese, and German manufacturers. Despite a lower share of production, the US remains one of the world’s top automobile markets by sales. On the other hand, as a defensive move, many companies have focused on serving niche markets such as luxury cars, light utilities, and commercial vehicles.

  Leading car production in 2024

  

  Source: Benzinga

  By last year China was well established as the world’s Number 1 car manufacturer, producing a total of 31.28m units. It was followed by the US (10.56m units), Japan (8.23m) and India. Amid the top global car producers there were two from Latin America. Mexico was ranked fifth in the world with production of 4.20m units, while Brazil was ranked eighth with 2.54m units. Mexico’s strong position can be attributed to its population size (just under 130m), along with its close supply chain integration and zero-tariff trade access to its North American neighbours, the US, (population 340m) and Canada, (pop. 40m). Brazil also benefits from population size and economies of scale, but it faces greater tariff and non-tariff obstacles to its exports.

  In terms of market share by manufacturing companies, Toyota of Japan took the top slot in 2023 with 10.307m vehicles produced, followed by Volkswagen of Germany (9.239m), Hyundai-Kia of South Korea (7.302m) and Stellantis of US/Europe (6.39m). Chinese companies were represented by Changan Automobile (ranked tenth with 2.55m cars produced) and Geely (ranked 15^th with 1.68m cars produced). In coming years more Chinese manufacturers are expected to enter the top 10.

• The global advance of EVs

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  Global electric vehicle (EV) car sales totalled 17m in 2024, showing a blistering pace of growth on the preceding year. EVs made up almost half of total car sales; one in every ten Chinese cars on the road is now electric. Europe, on the other hand, saw something of a flattening-out of EV sales growth as various incentive schemes and subsidies began to be phased out. Despite ups and downs, EVs still held on to their market share at around 20%. In the US EV sales grew by 10%.

  The EV wave is spreading to new territories. Some analysts have argued that because of overcapacity in China, EVs are now being exported at historically low prices to other regions. Asia and Latin America saw sales surge by a combined total of 60% year-on-year to nearly 600,000 units in 2024. There has also been notable growth in Africa (mainly in Morocco and Egypt) but also in Thailand and other emerging economies.

  Global EV sales are expected to reach a total of 20m this year, or more than one-quarter of all cars sold worldwide. Confirming the strong pace of demand, sales in the first three months of this year were up by 35%. Chinese sales will be helped by a scrappage incentive scheme for trading-in fossil fuel cars as well as affordable pricing policies.

  In Southeast Asia where two and three-wheeled vehicles are popular, they are expected to electrify more rapidly than four-wheel cars. In Europe the 2025 EU emissions reduction target should also help EV sales. The position in the United States is less positive, however, because of the Trump presidency’s enthusiasm for fossil fuels and criticism of his predecessor’s Green New Deal incentives.

  A report by the International Energy Agency (IEA) notes that there are several risks to EV uptake on the horizon. They include policy uncertainty over protectionism and import tariffs, particularly in the United States. There is also a possibility that oil prices may fall, reducing the speed at which consumers switch to electric powered vehicles.  The report notes that “Higher tariffs might increase the price of cars, including electric cars, and their components; lower GDP growth could dampen car sales; and lower oil prices affect the fuel cost savings from the use of electric cars”.

  It suggests however, that on aggregate they look to pose risks for overall car sales volumes, more than specifically for the EV share of them. According to its calculations, even if international oil prices were to fall to US$40 per barrel there would be “significant fuel cost savings in all major EV markets when charging at home”.

  Looking forward, IEA expects China to continue being the world’s EV manufacturing hub, responsible for more than 75% of global production. Global trade in EVs will continue to grow (it was up by 20% in 2024). Chinese exports are diversifying as Chinese automakers expand sales in Brazil, Mexico, and South Asia. An important point is that battery prices are expected to continue trending down, albeit with some exceptions. Last year Chinese battery prices fell by around 30%, compared to a 10-15% reduction in Europe and the US. Public charging infrastructure continues to grow, but at a lower rate in the US and the UK.

  Global electric car sales, 2014-2014

  

  Notes: BEV = battery electric vehicle; PHEV = plug-in hybrid vehicle. Includes passenger cars only

  Source: IEA

• China is in the EV driving seat

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  A recent report published the International Council on Clean Transportation (ICCT) supports the general view that China is now in the forefront of the global EV industry. The report says that China-based automakers “are building significant leads in the zero-emission (ZEV) vehicle market”. It says they have “leveraged their massive domestic market to build economies of scale and advance technologies”. Manufacturers such as Geely and SAIC met their target of taking EV production higher than 50% of their total annual output a year early. In contrast ICCT says, US and EU automakers face a double challenge to catch up technologically while navigating “increasingly uncertain regulatory environments”.

  The report notes that China’s BYD exceeded US manufacturer Tesla’s worldwide battery electrical vehicle (BEV) sales for the first time in 2024, with a 25% increase in BEV sales and a 47% increase in plug-in hybrid battery (PHEV) sales. In the BEV sector there were generalised improvements in energy consumption, charging speeds, and driving ranges. While US and Japanese companies GM and Honda introduced high performance models to upgrade their previously limited BEV offerings, Chinese companies like Geely, Chang’an, and Chery “improved substantially” with new high-performance lines.

  In March this year BYD announced what many consider to be something of a technical game-changer – a platform that allows an EV to fully charge its batteries in five minutes. It said its Super e-platform offers “charging speeds never before seen in mass-production electric cars”. It reportedly can achieve a one-megawatt charging rate, meaning a five-minute charge could deliver up to 400kms of driving rage. The system is being offered on HAN L and TANG L, two new BYD models featuring a 580kW motor capable of achieving speeds of up to 300kms/hour. BYD president Wang Chuanfu said, “to completely eliminate users’ charging anxiety our goal is to make EV charging as fast as refuelling a petrol car – achieving ‘oil-electric parity’ in charging speed”.

  ICCT president Drew Kodjiak said: “As China-based automakers expand globally, other leading global manufacturers face urgent pressure to accelerate their own transitions or risk losing competitive ground…the rapid evolution of the EV market in China has created technological and manufacturing advantages there. For the wider global industry this is no longer just about meeting future goals, it is about remaining competitive today in a market that’s charging up.”   

• Latin America is buying Chinese electric

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  Available statistics point to strong sales of Chinese EVs in Latin America. According to market research company Rho Motion global sales of electric (EV) and plug-in hybrid vehicles rose by 24% in May this year compared to the same month in 2024, to reach 1.6m units. Demand was led by China itself with a slower rate of expansion in North America. Chinese manufacturers such as BYD were beginning to focus more intensely on emerging markets. Rho Motion said the picture was complicated by import tariffs, with the US applying a 25% charge, forcing many non-US companies to reconsider their sales projections for this year. Sales in China were up by 24%, those in Europe grew 36.2%, and those in the rest of the world, including Latin America, were up by 38%.

  New units (in thousands) registered per year in the four largest markets: Brazil, Mexico, Argentina and Colombia

  Source: Americas Market Intelligence

  It is estimated that Latin American EV sales in 2024 will have totalled close to 200,000, a very small number compared to the nearly 12m sold last year in China. Yet from this very low base, growth is now being described as “explosive”. Chinese EV sales are booming in Brazil, the largest car market in Latin America by the size of domestic sales. Last year EV sales more than doubled to 125,000 units, representing a 6% market share. EV adoption had earlier been slow because of high prices – significantly higher than for internal combustion powered vehicles. Yet the boom in volume manufacturing in China itself has introduced a new generation of more economical EV models. The EV share of total sales in Latin America has jumped from 2% in 2022 to 6% in 2024. Chinese EV sales in the region are concentrated in Brazil, Mexico, Colombia, Costa Rica, and Chile, in that order.

  Latin America passenger EV sales and EV share of new passenger vehicle sale

  

  Note: EVs here include battery electric (BEVs) and plug in hybrid vehicles (PHEVs)

  Source: BloombergNEF

• Sign of the times: “zero mileage” second hand cars

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  A key issue facing the emerging vehicle transition is how to price new EVs coming onto the market. Within China itself competition is intense due to a proliferation of car manufactures – well over 100 at present – and generalised manufacturing over-capacity. Companies have ruthlessly pushed manufacturing costs down as low as possible, while at the same time benefitting from a number of regional incentives and subsidies. This has led to an apparent oxymoron: the growing sales of ‘second hand, zero mileage’ vehicles. Under this system an exporter will buy a new Chinese car as it comes off the assembly line, register it with a Chinese number plate, and then immediately mark it as second hand for overseas sale at a lower-than-listed price.  

  This practice has come about because manufacturers in China are carrying large stocks of new, unsold vehicles. Those declared ‘second hand’ can be sent for sale at lower prices overseas, typically to markets in Russia, Central Asia, and the Middle East, although also to markets in Latin America. Tu Le, a US-based automobile industry consultant told Reuters news agency that “this is the outcome of an almost-four-year price war that has made companies desperate to book any sales possible”. The practice was something of a trade secret until the chief executive of Great Wall Motor criticised it in the Chinese media. In June this year, the Peoples’ Daily newspaper, seen as close to central government thinking, said the proliferation of “fake used cars” was driving down prices too far and called for “tough regulatory action” to restore order.

  Despite this, the reality is that Chinese regional governments, eager to stimulate local manufacturing and jobs, frequently encourage and offer subsidies to local assembly plants, sometimes ignoring central government regulations. A recent Reuters report found that at least 20 regional governments including Guangdong and Sichuan have supported zero-mileage used cars in public statements. In fact, these governments use various tactics to aid local manufacturers. They include issuing zero-mileage used car export licences, accelerating tax rebates, offering free warehouses, and investing in export and port infrastructure to accelerate the flow of shipments. Under China’s at least partly centrally controlled economy, meeting ambitious production and sales targets is seen as unlocking political and business rewards.

  Wang Meng, a consultant for China Automobile Dealers Association says that of 436,000 ‘used’ passenger and commercial vehicles exported last year, 90% were described as ‘zero mileage’.

• The mystery of Chinese car prices

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  Many industries experience periods of domestic over-production which leads them to dump excess production in export markets, a process widely condemned as a form of unfair competition. There is certainly evidence of excess production in China’s automobile sector, and many complaints of artificially low or subsidised prices. But it Is also true that Chinese companies are pricing their exports much higher than their domestic sales.

  According to a car price survey conducted last year, BYD was charging double, or even triple, for key export models compared to their prices on the domestic market. The mid-range BYD Atto 23, a compact electric crossover, was selling for the equivalent of US$42,789 in Germany, and for only US$19,283 in mainland China. In March last year BYD chairman Wang Chuangfu told an investor’s meeting that the reason for the differential was to shore up profitability on the company’s export markets. Normally in the international auto industry, differential pricing for similar models on sale in different countries is relatively small, but BYD and other Chinese players have decided to break with that practice. Sam Fiorani of industry research company AutoForecast Solutions says, “globally marketed vehicles are usually priced in a narrow range”. But cut-throat competition in China has slashed domestic prices, leaving companies to try and recover some revenue from much higher prices in overseas markets. Crucially, because the Chinese companies have already ruthlessly compressed operating costs, it is possible to double or triple their domestic price levels and remain competitive in overseas markets. China’s EV makers have taken costs out of raw materials, batteries, land, and labour, as well as receiving significant subsidies from regional governments in China, who wish to boost production and attract investment and jobs.

  For now, Ben Townsend of Thatcham Research says the Chinese are “not looking to undercut the European market; they are looking to make margin”. In other words, the companies are content to keep prices high in export markets in pursuit of profitability. However, international analysts say they also have sufficient margin to cut overseas prices in future should they become involved in a battle for market share. Higher prices also make sense in branding terms as the companies try to present themselves as a more up-scale proposition.

  Analysis of marketing strategies followed by Chinese EV makers in various parts of the world show there is a tendency to price cars marginally below the prices of established rivals, and to pack them with interior and technology features as standard, which competitors only offer on payment of additional fees. The Chinese are able to compete on these items, largely because they have been able to reduce the costs of batteries, one of the most valuable EV components. Research suggests average Chinese battery costs last year were 18% below those of their European rivals. Part of this in turn has been due to Chinese efforts to build over time a robust minerals and metals supply chain. Keith Norman of Lyten, a Silicon Valley battery start-up, says Chinese automakers and suppliers have spent the last two decades securing access to mines across the world to lock up critical battery minerals such as lithium and cobalt. “They own the critical-minerals part” he says.

• Improving Chinese safety performance

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  Western consumer attitudes have often been sceptical of Chinese vehicle brands which are seen to score poorly on vehicle and passenger safety. For this reason, many sales executives promoting Chinese cars welcomed an announcement late last year that the BYD Dolphin had become the first electric vehicle to win a five-star rating in the Latin NCAP crash and safety test, allowing it to claim to be the safest car in its category in Latin America. Latin NCAP stands for Latin New Car Assessment Programme, an independent, non-profit organisation that assesses car safety. The Dolphin has seven airbags and comes with an ADAS (Advanced Driver Assistance System) as standard. The car scored highest for child occupant safety, followed by adult safety, pedestrian protection, and vulnerable road users’ safety. Latin NCAP said that the model tested, Dolphin Plus, “showed, in general, good performance with stable structure and footwell areas, and adequate to good adult chest protection in the frontal impact”.

  Not all assessments of the new wave of Chinese EVs are positive. According to a survey by Vietnamese car-listing platform Oto.com.vn several models of Chinese cars lost re-sale value by 24%-33% between 2022 and 2024, much more than their Japanese and South Korean counterparts. Cars built by Kia, Hyundai, and Toyota depreciated by less than 20% in the same period. Anh Dung, a used-car distributor, said: “Buyers prefer safe options when it comes to used cars to ensure stability, and they often look to Japanese and Korean brands.” However, the survey also revealed that Chinese brands are gradually gaining the trust of Vietnamese consumers, a process that could also be taking place in Latin America. 

• Heavy metal options

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  The focus of this report is on China’s battle for market shares and technology in the electric vehicle (EV) segment, which could be described as a ‘downstream’ part of the automobile industry. But it is important to note the rising EV sales may also have transformative effects on parts of the ‘upstream’ – such as the mining of key Latin American metals like lithium and copper, which are essential components of modern EVs. In fact, the electric vehicle boom could trigger some significant changes in the Latin American mining industry.

  Lithium is a key component of EV batteries. Bolivia is reported to hold the world’s largest lithium reserves at 23m tons, followed by Argentina (22m tons), and Chile (11m tons). Taken together these three counties are known as the lithium triangle. For their part Bolivian governments have sought to nationalise lithium and granted monopoly development rights to the state lithium company YLB. In early 2019 the government said it had reached an agreement with China’s Xinjiang TBEA group to extract lithium from two salt flats but a coup d'etat and change of government meant the plans came to nothing. In mid 2023 a new announcement was made, this time involving a US$1.4bn joint venture with CATL of China to develop lithium extraction from the Uyuni and Coipasa salt flats. Further lithium plans are unlikely to be announced until after Bolivian general elections due in August.

  

  Source: Mining.com

  Argentina has pursued business-friendly lithium mining policies. This has led to new investment and increased production, making the country the fourth largest lithium producer in the world (after Australia, Chile, and China). Mines in three provinces (Jujuy, Salta, and Catamarca) are responsible for around 5% of world lithium output. Existing laws allow companies to negotiate mining contracts directly with provincial authorities. Regional royalties are capped at not more than 3%. There are currently 49 new lithium mining projects under development, of which seven are led by Chinese companies.

  Chile accounts for around one-third of global lithium production and is the second largest global producer. Eighty-nine per cent of China’s imports of lithium carbonate are sourced from Chile. A new National Lithium Strategy enables significant state control but also allows private companies to operate on a licensing basis. There are currently two companies mining lithium in Chile, locally owned SQM (in which China’s Tianqi Lithium has a 22% stake) and US-based Albermale. There have been reports of a project in which China’s BYD would invest US$290m combining lithium mining, refining, and cathode production. However, industry sources have recently suggested it is on hold. This too is an election year in Chile which means lithium policy could be reconsidered. However, governments of both the left and the right have a history of good economic relations with China.

  Away from the lithium triangle there have also been developments in Mexico where lithium reserves are estimated at around 1.7m tons. In 2022 the government created a state-owned lithium company, known as LitioMx which was given exclusive responsibility for exploration, production, and refining. The move triggered a legal dispute since the state of Sonora had earlier given production rights to Bacanora Lithium, later purchased by Ganfeng. In June of last year Ganfeng initiated an arbitration case against Mexico, which is ongoing. Like her predecessor, Mexican President Claudia Sheinbaum is eager to see higher value-added activity in Mexico, ideally moving from mining and refining to full lithium-battery industrial production.

  The copper content of EV production is much greater than in internal combustion vehicles since electric vehicles contain large amounts of copper both in the batteries and in internal cabling. Partly because of this, in 2023 the US government declared copper to be a critical mineral. Latin America produces around 40% of the world’s copper. The key copper mining countries are Chile, Peru, and Mexico. In 2022 Chile exported US$22.8bn worth of copper ore, of which US$15.6bn or 68% went to China. In the same year 71% of Peru’s copper shipments went to China. Chinese companies such as MMG, Guoxin, and Citic are active in Peruvian mining.

  US-China geopolitical rivalry may also affect refining. The global processing of critical minerals is already concentrated within China with some experts claiming it refines 90% of the world’s rare earth minerals and 60-70% of lithium and cobalt. A Chinese decision in 2023 to introduce export controls on graphite, germanium and gallium has increased US concern that its national security could be affected by key mineral shortages. As we shall see below, the definition of what is local content in the composition of batteries and other EV components may be critical in determining access to the US and tariff levels.

  While many Latin American governments aspire to attract lithium-ion battery production to their countries, few have succeeded, and Chinese EV companies do not seem eager to prioritise reshoring this activity. BYD has a plant in Manaus in the Brazilian Amazon which started production in 2022 and appears to be mainly focused on battery pack assembly, rather than manufacture, serving the company’s bus factory in Campinas, São Paulo state. Plans for full BYD battery production in 2025 are associated with a proposal to build a major BYD assembly plant in Camaçari, but as we shall see this project is delayed. Industry analysts say EV battery construction in Brazil will almost certainly be intended to meet domestic demand, since the US is boosting its own domestic battery production and seeking to shut out Chinese competition.

  Other plans to start battery production in Latin America seem to be general declarations of intent rather than firm ready-to-go projects. In early 2023 Chinese EV manufacturer Chery announced a large project in Argentina, apparently to include battery manufacture. No further announcements were made, and it is assumed that the plan is not progressing. CATL, another Chinese EV maker, said in 2022 that it had plans for a battery plant in Mexico that could potentially serve a Tesla factory in Texas. The situation changed when the Joe Biden administration introduced the Inflation Reduction Act (IRA) with major incentives to encourage domestic battery production in the US. CATL has subsequently pivoted to sign a licensing agreement with Ford to manufacture ion phosphate batteries in Michigan.

• Brazil: football fields full of cars

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  Perhaps symbolising the potential for Chinese EV sales to Brazil, the world’s largest car-carrying ship made its maiden voyage to the Brazilian port of Itajaí in May 2025, carrying the equivalent of 20 football fields’ worth of back-to-back new cars. In four trips in the first half of this year BYD delivered around 22,000 vehicles. Reactions have been somewhat mixed, with many Brazilians cheering what they see as the arrival of a new wave of affordable zero-emission vehicles. However, others expressed fears that cheap imports may end up weakening Brazilian auto production and causing future job losses.

  BYD is the largest EV manufacturer in the world. It is predicted that Chinese EV imports into Brazil will grow by 40% this year to reach 200,000 vehicles, or 8% of existing light vehicle registrations. Brazil currently charges a temporary 10% import tariff on all imported vehicles. Trade union and business lobby groups fear that the Chinese are taking advantage of these comparatively low tariffs to seize market share and build customer loyalty. The local lobbies on the other hand fear this could, on the medium to long term, squeeze their profitability. To protect against that eventuality, they want tariffs increased to around 35% to protect national auto production. “Countries around the world started closing their doors to the Chinese, but Brazil didn’t” Aroaldo da Silva, a Mercedes Benz production worker and trade unionist, told Reuters news agency. In his view, this gave China a pathway to getting into Brazil, an attractive market because of its size, and to challenge the incumbents such as Volkswagen, General Motors, and Stellantis (whose Jeep brand is popular locally).

  In 2015 the Brazilian government eliminated import tariffs on EV makers such as BYD in an attempt to attract them to invest in new local assembly plants. While BYD and others began developing plans to build local factories, after a change in government a 10% tariff on imports and a quota system was introduced to protect those already operating in Brazil. This tariff is due to rise further in 6-monthly steps taking it up to 35% by 2026. Automobile manufacturers’ association ANFAVEA has requested a more accelerated move to raise tariff levels. The ministry of trade and industry says the “gradual resumption of tariffs with decreasing quotas” is intended to “allow companies to continue with their development plans and respect the maturity of manufacturing”. Existing legislation also provides for some zero-tariff imports of EVs and PHEVs.

• Brazil weighs up data protection risks

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  Some analysts worry that the spread of Chinese-made EVs poses a risk to data protection laws such as Europe’s GDPR which sets out data privacy and security standards. Brazil has a similar law known by its Portuguese acronym LGPD. In the first four months of this year some 54,600 EVs were sold in Brazil representing a 7.5% market share. Chinese EV brands such as BYD, Great Wall Motor, Chery, and Zeekr are permanently internet-connected. JR Caporal, head of Brazilian auto-tech company Auto Avaliar, says the Chinese EVs are forcing a “structural reconfiguration of the market” based on innovation, economies of scale, and a planned industrial strategy. He says individual vehicles have become “digital databanks on wheels” but that at present there is a lack of transparency over how their data is used and stored.

  Europe-based cyber-security company Sophos says there is already one legal case in France over alleged unauthorised data collection by EVs including details of routes and times followed, driver performance, and voice commands. Thiago Guedes of Brazilian security company Deserv says that digitisation of the auto industry must be accompanied by a responsible industry stance on users’ rights to privacy. Another specialist, Bruna Fabiane da Silva, says “if a connected vehicle collects sensitive data without explicit consent, or without effective local control, there is a risk that the LGPD law is being violated”.

• GM plans to side-step US-China auto rivalry

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  The surge in sales of Chinese EVs in Brazil is triggering a strategic re-think among some of the incumbent industry players. In June GM announced the launch of a range of new EVs and hybrids on the local market including four electric Cadillacs (Optic, Lyric, Vistiq, and Escalade) a hybrid Corvette and an electric Sierra pick-up. Fabio Rua, GM vice president for Latin America, said the launches were creating a “new GM”. Henceforth the company would seek to offer its Brazilian customers “the best GM models in both the United States and China, to strengthen the Chevrolet brand”.

  Rua said the company did not yet have all the import licences it needs but insisted that its future will depend on its ability to import or assemble both North American and Chinese models. The Chinese contribution is expected to come in part through Wulling, a company in which GM has a 45% stake, and which currently manufactures the Chevrolet Spark EUV and the Chevrolet Captiva EV in China. There will also be collaboration via SGMW, a joint venture company formed by China’s SAIC and GM.

  Rafael Santos, GM Vice President for Operations, said that China is “fundamental” for the future of GM in Brazil, since its EV technology is more competitive than that used by US and European competitors. Although recognising the importance of hybrids in the Brazilian market, GM is still planning to produce 100% electric models by 2035.

• Brazil faces labour trouble at Camaçarí

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  One of the big issues (which as explained below also applies in Mexico) is whether, where, and when the new generation of EV manufacturers will build local plants in Latin America. The decision is complex not least because trade and tariff policies have been in flux as the Trump administration in the United States moves to take a much more protectionist stance. Trying to revive car production in the United States has been at the centre of Trump’s MAGA ‘Make America Great Again’ agenda. Despite initial enthusiasm for building new car production assembly plants, some of the companies have put them on hold as they seek greater clarity on official policies.

  In July 2023 the Brazilian government strongly welcomed a decision by BYD to purchase and rebuild a disused Ford plant in Camaçarí, Bahía state, in the northeast of the country. According to the initial announcements, the Chinese company would build electric buses and truck chassis, electric cars, and hybrids at the location. It had paid the state government BRL287.8m (US$58m) for 4.6m square metres of land at the site. BYD said it intended to invest BRL3bn (US$620m) in 26 production units within three new factories. The complex was expected to be completed by early 2025 with capacity to build 150,000 units per year in the first phase, later rising to 300,000.

  It would start out producing a range of models including the all-electric BYD Dolphin, the Song Plus, the Yuan Plus (also known as the Atto 3), and the Dolphin Mini (also known in some markets as the Seagull). Included in the facilities was a processing plant for lithium iron phosphate battery materials. Local officials said the new plant would create 5,000-to-10,000 jobs in an area of the country that had still not recovered from the closure of the Ford plant.

  For the government of President Luiz Inácio Lula da Silva the proposal appeared to tick all the boxes. It would create jobs in a traditionally poor part of the country. It would bring urban renewal to a previously rust belt town. It would create industrial jobs while supporting the government’s transition to greener, more sustainable energy.

  And then, on Christmas eve 2024, something went badly wrong. The Brazilian labour ministry said it had rescued 163 Chinese workers from slave-like conditions at Camaçarí. They were employed by Jinjiang, a civil engineering contractor used by BYD to build its factories. Investigations showed living conditions on the site in makeshift barracks were extremely poor, the company had retained workers’ passports, and made them subject to fines for swearing, quarrelling, or not wearing a shirt. Lawyers said these behaviours were “textbook red flags of forced labour”.

  Both Jinjiang and BYD sought to deny or deflect the claims. Jinjiang said “the claim that Jinjiang employees were ‘enslaved’ and ‘rescued’ is totally off base”. BYD vice president Alexandre Baldy said his company had no knowledge of conditions imposed by Jinjiang. With an official investigation now under way and Brazil’s automobile unions also involved, work at Camaçarí has been delayed and the date for the facility to become operational has been set back significantly. In May this year the company said it had updated its schedule so that by December 2026 the facility would be “fully functional with the expectation of generating 10,000 jobs”. In June the company presented what it said was the first all-electric Dolphin Mini built in Brazil. Stella Li, BYD chief executive for Latin America, said that “only 15 months since the beginning of work, we are able to present as an experimental project, the first car to come off the production line, a key moment for the future of sustainable mobility across Latin America”.

• Dolphin leading the charge in Mexico

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  In December 2024, a few weeks before Donald Trump was set to start his second presidential term, Jack Ewing, a New York Times journalist, met Estéban Alegría, a salesman at a recently established BYD dealership in the low-income suburb of Iztapalapa in Mexico City. Alegría was full of enthusiasm for the Dolphin Mini, one of the latest models imported from Chinese manufacturer BYD. The four-door compact car was selling in Mexico for the peso equivalent US$18,000, around US$10,000 less than the cheapest EV on sale in the US. Customers were desperate to get their hands on it. Alegría said his modest dealership was selling the cars as fast as they arrived from China. Ewing gave his take on the story by commenting: “Behind a crumbling brick wall in a working-class neighbourhood of Mexico City lurks a seemingly innocuous car lot. But it could be a sign of a potentially grave threat to the North American auto industry.”

  The article argued that Chinese EVs are taking Mexico by storm and rapidly changing customer perceptions. Advertisements for Chinese cars are everywhere, including football stadiums and main highways. Prices, partly due to Chinese government subsidies, are highly competitive. The cars come with innovative technology – including rotating touch screens. They also boast more advanced autonomous driving and entertainment options as standard. Dealers say they also have better mechanical quality. Chinese-made cars now have a 9% share of new sales, up from virtually zero five years previously.

  Incumbent players admit the Chinese are doing exceptionally well. Guillermo Rosales Zárate of the Mexican Association of Automobile distributors told the NYT “they gained market share when other brands didn’t have inventory and there were long waits to get cars in Mexico”. The story is also about protectionism. Cheaper Chinese EVs could be a major threat, as Ewing suggested, to the incumbent North American automakers. In fact, the Chinese ‘wave’ was at the time being held back by a 100% US import tariff and by a 20% Mexican import tariff.

  The free trade agreement between the US, Mexico, and Canada, known as USMCA, provided a gigantic tariff-free zone across North America, allowing Mexican auto plants privileged access to the US market. However, as we shall see, through its tariff policies the second Trump presidency sought to reduce that access and to prevent China using the USMCA as a back door into the US market.

  Many car industry supply chains cross borders

  

  Source: BBC

• The view from Aguascalientes

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  Speaking in June in the state of Aguascalientes, Erika Muñoz Vidrio, president of manufacturing lobby CANACINTRA, recognised that local industrialists and automobile executives were worried by an uncertain trade and tariff environment and by the surge in competition from Chinese-made vehicles. “It’s not just tariffs”, she said, “it is a global issue, and we see new brands coming out of Asia which are competing with established brands and are positioning themselves among the top sellers; these are innovative vehicles with high technology and the impact of that on sales is making itself felt”. She said local assembly plants had not yet had to reduce output or cut staff, but she felt there was a risk of that happening if the tariffs issue wasn’t stabilised and if top Mexico-based car brands suffered significant loss of market share.

  Muñoz said that some of the new Chinese marques were competing with Nissan models considered to be among the market leaders in Aguascalientes. Data from INEGI, the Mexican government’s statistics institute, showed that the nationwide best-selling models in Mexico in 2024 were the Nissan Vera, followed in second place by the Nissan NP300, the Chevrolet Aveo in third place, and the Kia K3 in fourth place. The Chinese-made MG5 had risen rapidly to take sixth place.

• Mexico debates tariffs on Chinese imports

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  Mexico-based automobile plants are worried by the surge in Chinese imports. In the first four months of this year 19.1% of all cars sold in Mexico were imported from China. Jorge Guajardo, a consultant for DGA Group and former Mexican ambassador to China, says current Mexican regulations, which permit companies with assembly plants in Mexico to import full vehicles and auto-parts duty free, are being abused as a back door route to bring in Chinese-made vehicles. He says this loophole could be closed with an “aggressive” 70% automobile import tariff. Guajardo argues that Chinese cars are an example of unfair competition since the manufacturing process is heavily subsidised by the Beijing government.

  But Eduardo Solís of Carfax Mx says local industry regulations have worked well. He points out that Mexico-based assembly plants can only import duty free when they meet certain investment and export targets, which most Chinese companies do not. Solís says Mexico’s car industry follows an essentially export-led business model, which is deeply integrated with the US market and has been highly successful. He says Mexico is now the world’s fourth largest car exporter, and nearly 80% of national production is exported. In his view it would be best to leave Mexican automobile import tariffs stable at 20%, particularly since there is so much ongoing uncertainty over where US tariffs are heading.

• Liverpool rethinks BYD deal

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  Chinese car companies are experimenting with different approaches to marketing and distribution. Liverpool (not the city in UK, but a department store chain in Mexico) recently announced that it was terminating its sales partnership with BYD. The partnership had lasted for two-and-a-half years, during which time Liverpool built six showrooms and three certified service centres. In 2024 a total of 4,384 vehicles were sold through Liverpool’s national network of 320 stores and dedicated showrooms. This was widely seen as a success, making the department store one of the Chinese company’s main sales channels.

  Neither party sought to give detailed reasons for the break in the relationship. Some analysts noted that in a recent call with investors Liverpool finance director Daniel Gallegos warned of uncertainty over future tariff levels that Mexico might impose on Chinese automobile imports. 

• The case of the disappearing gigafactory

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  The promise and peril surrounding parts of the Latin American automobile industry is brought into sharp focus by the story of Tesla’s gigafactory in Santa Catarina, a municipality west of Monterrey in the Mexican state of Nuevo León. In March 2023 Elon Musk, the owner of Tesla and the world’s wealthiest individual, announced that his company would build a giant factory there, to produce Tesla EVs for export back to the United States.

  It was a clearly ambitious proposal. Musk said its output would be in addition to that of the company’s five existing gigafactories, of which three are in the United States, one in Shanghai, China, and one in Germany. Mexican officials said the plant would take 12-15 months to build and when completed would employ 6,000 workers and represent between US$5bn and US$10bn worth of investment. Mexican deputy foreign affairs minister Martha Delgado said the facility would be “the biggest electric vehicle plant in the world”. She added that it would produce around 1m vehicles a year for domestic and international markets. It would cut average manufacturing costs by 50%. Company officials were also said to be considering building a battery plant in central Mexico.

  Nuevo León governor Samuel García was ecstatic over the news, posting on social media that “the richest man on earth trusted Nuevo León for his new gigafactory and his next generation vehicle. The future is bright.” Then-President Andrés Manuel López Obrador (2018-2024), a leftist who had expressed worries over the gigafactory’s impact on scarce water resources, nevertheless signalled his interest in the project. He said that in talks with Musk “I clarified that lithium has already been nationalised but that doesn’t mean we can’t reach an agreement. Lithium belongs to Mexicans but if you buy the raw material, put it in battery factories in Sonora, give work to sonorenses, to Mexicans, an agreement can be reached.” Analysts highlighted other plus factors which include competitive Mexican labour costs, well established supply chains, and a larger home market.

  And yet, two years later, although the ground has been cleared and basic municipal infrastructure has been put in place, nothing has happened. A collection of factors seems to be responsible for pausing the project. Back in 2022 Tesla’s problem was that it couldn’t build cars fast enough to keep up with demand. But by 2024/2025 international EV production growth had moderated, and Chinese companies had aggressively captured market share. Oversupply was the new problem. Tesla responded by cutting its prices, but this reduced profitability. In October of 2024 Musk said, “I think we just want to get a sense for what the global economy is like before we go full tilt on the Mexican factory.”

  Another critically important factor was the risk that Donald Trump, then a presidential candidate, might be elected and deliver on his campaign promises, of ending or reducing the tariff-free status enjoyed by Mexican-based companies exporting automobiles and auto parts to the United States, under the terms of USMCA (the US, Mexico, and Canada free trade agreement). With Trump talking of possible 100% tariff rates on imports from Mexico the gigafactory could end up being a loss-making disaster. Musk said he would postpone any decision until after the US elections. Tesla strategy also moved away from earlier plans to build a new generation of economy EVs, with a new focus on developing its proposed autonomous Robotaxi service.

  In the event, Trump did win the elections and Musk decided to work closely with him, accepting the job of heading the newly created and deeply controversial Department of Government Efficiency (DOGE). Before he stepped down, Musk was effectively a senior member of the US government for the first five months of Trump’s administration. Yet this political involvement was arguably deeply damaging to his businesses. Tesla’s brand has been built appealing to affluent and liberal-leaning consumers, so Musk’s association with a blue collar, far-right, and climate sceptic president with a blue collar base created a clash of brand values. On the environment Trump promised to “drill baby drill”. Tesla has been damaged. This year its share price has plummeted. It also became evident that the two men had sharply divergent views on government spending, international trade, and tariff levels. They parted acrimoniously.

  Observers of the empty site in Nuevo León might draw various conclusions. For the existing and established automobile manufacturers in Mexico, their role in local supply chains, which represent over 3% of GDP, is likely to continue but will be threatened by uncertainty over tariff and tax levels, and by moves by Trump to renegotiate USMCA to boost employment in the US. For Chinese and other new entrants it is the prospect is that they will remain shut out of the US market by prohibitively high tariff levels. The US is also likely to apply pressure on Mexico to limit the Chinese presence by closing USMCA loopholes and by increasing its tariffs. The current Mexican government will find itself trying to follow a politically difficult middle way persuading US, European, Korean, and Japanese companies to stay while equally trying to attract the new Chinese players to invest and join the sector.

• What are the ‘Trump tariffs’ for the Latin American auto industry?

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  For multinational companies deciding where to build new plants and access supply chains, tariff levels are a major factor to consider. However, as this timeline shows, US President Domald Trump’s policies seem to be in constant flux, making forward planning a major challenge.

  • 20 January: During his inaugural address Trump promises higher import tariffs.
  • 1 February: An executive order declares a national emergency and imposes a 10% tariff on goods imported from China, with a 25% rate applied to Canada and Mexico, effective from 4 February. However, the following day Trump agrees to a 30 day “pause” on Mexico and Canada.
  • 4 February: the 10% tariff goes into effect on China, which announces a range of countermeasures.
  • 10 February: Trump announces a 25% tariff on steel and aluminium imports to start on 12 March.
  • 1 March: The US president asks the Commerce Department to consider whether copper, lumber, and timber tariffs are needed for reasons of national security.
  • 4 March. Canada and Mexico 25% tariff rate takes effect although it is limited to 10% for Canadian energy products. China tariff doubled to 20%. All three countries impose or threaten further retaliatory measures
  • 5 March. After meeting executives from Ford, GM, and Stellantis Trump agrees to a one-month pause for the automobile industry. He also announces a further exemption for Mexico after acknowledging progress on border security issues. China takes further retaliatory measures.
  • 12 March. Steel and aluminium tariffs go into effect. The European Unon announces retaliatory measures as does Canada.
  • 24 March: Trump says he will place a 25% tariff on imports from any country that buys oil or gas from Venezuela.
  • 26 March: Trump says he is placing a 25% tariff on all automobile imports, which he claims will foster domestic manufacturing.
  • 2 April: Calling it “liberation day” the US President announces a major programme of country-by-country “reciprocal tariffs”. These turn out to be based on a simple formula, disliked by most economists: the bilateral trade deficit, divided by imports from the country in question, and then halved. Using the formula tariffs will be set at 34% for goods from China, 46% from Vietnam, 20% from the EU, and 10% from Brazil. Canada and Mexico do not appear on the list because of their membership of the USMCA agreement with most of their products still able to enter the US duty free.
  • 9 April: In a rapid U-turn, Trump announces a 90-day pause on the previous reciprocal tariffs announcement, saying that in the meantime there will be a uniform 10% tariff on all countries trading with the US, with an additional levy for those running a surplus in bilateral trade. He further raised the rate on imports from China to 145%.
  • 11 April China, Canada, and the EU all announce further counter measures.
  • 29 April: Trump relaxes some of the 25% automobile tariffs aimed at easing import taxes for vehicles made with foreign parts but assembled in the US.
  • 4 May: Trump threatens a 100% tax on foreign-made films.
  • 12 May:  The US and China agree to de-escalate their trade war, declaring a 90-day truce. The Trump administration says it will reduce its 145% tariff on Chinese goods to 30%, while China says it will cut its 125% tariff on US goods to 10%.
  • 23 May: Trump threatens a 25% tariff on all goods imported into the US by Apple as a way of forcing the company to reshore mobile phone assembly back to the US. Apple had previously said that because of the China tariffs, the company was moving overseas production to Vietnam and India.
  • 25 May: After claiming trade talks with the EU were “going nowhere” Trump threatened to impose a 50% tariff on European goods entering the US.

• Conclusion

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  There are at least two ways of assessing the current state of the Latin American automobile industry and of the competitive challenges posed by Chinese companies. The first is to conclude that there is a troubled outlook ahead. In this view the global lurch towards protectionism and tariff uncertainty led by the Trump administration looms large. At a macro level there is a significant risk of a slowdown in the US economy amid concerns over the trade war with China, the fiscal deficit, interest rates, and inflation. Washington’s tariffs will probably remain high enough to shut Chinese companies out of the US market. An erosion of market confidence will lead to a reduction in economic activity and lower car sales across Latin America. On the more micro-level, the spike in uncertainty will force individual manufacturers to postpone investment decisions. There may be more stalled projects like Tesla’s Mexican gigafactory in Nuevo León, or BYD’s re-working of the Camaçarí site in Brazil.

  An alternative view is that a limited downturn in sales, while unavoidable, will still be manageable over the longer term. With mid-term elections due in November 2026, the Trump administration my lose some ground in congress and as a result rein in the tariff policy chaos that has been very damaging to the industry. As is often the case, short term recession may be accompanied by longer term reform and innovation. In this scenario Mexico will likely preserve a key role in the North American automotive supply chain, perhaps confirmed by a renegotiated USMCA treaty. Across Latin America as whole the rise of new, innovative, and keenly priced Chinese vehicles may stimulate competitive responses from incumbent US, European, Japanese, and South Korean manufacturers. Latin American governments may prove successful in balancing some degree of protection with the economic openness that delivers economies of scale, comparative advantage, and productivity.