Mexico can help Chinese car giant BYD establish its place in the US market (Analysis)

Hong Kong (CNN) — More than 5,000 electric vehicles were loaded onto a giant ocean shipping vessel in China this week and shipped to ports in Europe.

The cars come from Chinese automaker BYD, which is backed by Warren Buffett and has overtaken Tesla as the largest seller of electric vehicles in the world.

According to Chinese state news agency BAS, it is on its maiden voyage.

It’s a striking visual example of BYD’s growing weight, which has conquered its domestic market but now needs to chart new paths to maintain its momentum.

Two countries will be important for this: Hungary and Mexico. Although neither are major automotive markets, they could serve as gateways to Europe and North America, fueling the company’s quest to become a household name around the world.

BYD has started making inroads in both the countries. In December, it committed to opening a factory in Hungary, which would be its first car production plant in Europe. Prime Minister Viktor Orban’s government said it was one of the largest investments in the country’s history and would create thousands of jobs in the southern city of Szeged.

The company is also considering establishing itself in Mexico. It has expressed interest in building a plant in the country, although plans were not officially confirmed until January, a source with knowledge of the matter in the government of the southeastern state of Yucatán told CNN. BYD Mexico did not respond to a request for comment.

Experts say expansion into Hungary and Mexico will help the Shenzhen-based company avoid hefty tariffs as well as gain a foothold on opposite sides of the Atlantic. The plans could also help BYD deal with a difficult geopolitical environment, especially as some European politicians are wary of what they see as an “avalanche” of Chinese electric vehicles.

But those who have long followed BYD Co., a brand that was once relatively unknown abroad and was even ridiculed by Tesla CEO Elon Musk in 2011, say the anticipated move. are not merely a reaction to rising protectionism.

“I would see this as a continuation of its global expansion and manufacturing footprint,” said Tu Le, founder of consultancy Sino Auto Insights. “It’s no secret that he has big ambitions for global domination.”

two new routes

Hungary, a small landlocked country of 9.6 million people, has become an increasingly important production hub in Europe for automotive suppliers, especially Chinese ones.

Chinese companies such as battery giant CATL and automaker Nio have made significant manufacturing investments in the country in recent years, along with German rivals Mercedes, BMW and Audi.

BYD already had a presence there as it opened an electric bus facility in Komárom city in 2017.

With its new plant in Szeged, the company will also get free trade access for its passenger vehicles. And according to Matthias Schmidt, chief European automotive analyst at Schmidt Automotive Research Co., not just Hungary, a longtime economic partner of China, but also 26 other EU members.

“You’ll also be able to benefit from all the benefits that Western European countries offer at a fraction of the cost,” he told CNN, citing lower labor and energy costs in Hungary compared to other regional automotive hubs like France or Germany. “

Although the facility was planned years ago, experts say it is especially timely as it allows BYD to avoid the 10% European tariff on cars imported from the world’s second-largest economy, as well as any other taxes. Will allow to finish. Examining China’s state support for electric vehicle manufacturers.

The investigation was announced last September by the European Commission, which said it was trying to find out how prices of electric vehicles imported from China were “kept artificially low.”

Schmidt said European tariffs are expected to increase after the investigation’s conclusion, although BYD could avoid paying more.

Bill Russo, founder and CEO of Automobility, a Shanghai-based strategic consulting firm, echoed this sentiment.

Unless lawmakers create new rules that focus on a brand’s country of origin — in this case, China — rather than its country of production, BYD’s Hungarian factory could be allowed to circumvent those duties, he said. Needed

A similar situation can be expected in Mexico. BYD currently does not sell passenger vehicles in the United States, where Chinese-made cars face a high import duty of 27.5%.

That could soon change if the automaker sets up production in Mexico, where it sells buses and cars.

Under the United States–Mexico–Canada Agreement (USMCA), the trade agreement that replaced NAFTA in 2020, 75% of every passenger vehicle must be manufactured in North America to avoid tariffs.

Since Mexico is part of this agreement, it has become more attractive to Chinese automakers.

The country could serve as an “entry point for manufacturing and exports to North America,” Le said. “The U.S. government would not like Mexico to create a backdoor.”

Apart from benefits like lower labor and transportation costs, Mexico is considered a solid base for BYD as Tesla is building a plant in the country. The US automaker is now one of BYD’s battery customers Musk’s change of mind.

“It’s not just an end-product strategy for them,” Le said. “It’s also: ‘We’re going to sell batteries in the Latin American market.’ And guess what? One of our biggest customers is building a gigafactory there. So it makes sense for us to be right next to them.”

In September, BYD executive vice president Stella Lee told Mexican outlet El Sol de Mexico that the company was eyeing a factory in the country, though it would depend on market response.

“If we see there is big demand, we will consider producing vehicles here,” Li said.

globalization

BYD, founded by Wang Chuanfu, built its reputation as a battery maker before leaping overseas.

The company’s first international entry came in 1998 with the creation of its first subsidiary in the Dutch region of Rotterdam, where it established a European headquarters and began importing batteries.

Although this occurred only three years after its founding, the company did not sell any vehicles in Europe until 14 years later, with the launch of electric buses, forklifts and taxis in 2012.

Unlike other Chinese companies, BYD “did not prioritize overseas sales first,” Rousseau noted.

Instead, he has focused on conquering China, where he has managed to trouble Tesla, the region’s longtime champion.

Last year, BYD was the best-selling car brand in China, with vehicles priced starting at $11,000.

But “now they’re taking a turn, because I think they’ve reached a point where, in order to grow, they have to prioritize overseas sales,” Russo told CNN.

The figures reflect this change. BYD’s presence now extends to more than 70 countries, up from more than 50 in 2020. The company is rapidly expanding existing overseas production in places such as California and Brazil, where it makes electric buses, with plans for new plants in Indonesia, Thailand and the Philippines. Uzbekistan.

In the first half of 2022, up to 40% of BYD’s customers come from its domestic market, which includes mainland China, Macau, Hong Kong and Taiwan.

A year later, the company has reduced that proportion to 33%, according to its latest interim annual report.

BYD has seen aggressive growth in its vehicle exports, which grew 334% last year to just under 243,000 units.

The leap is likely to help China overtake Japan as the world’s largest automobile exporter in 2023.

But analysts say BYD will need to take a more localized approach as it continues to grow overseas.

To win over politicians and consumers it would be necessary to build factories near their major markets.
This reflects a desire to create local jobs, which could help the company gain goodwill, and “then perhaps lead to more favorable treatment from governments in the region,” he said. Russo.

“Geopolitics is a major factor.”

—Carol Suarez and Lizzie Jury contributed to this report.