Mexico is moving toward one of its boldest trade actions in years, with plans to impose steep tariffs on cars imported from China. The proposed measures, which would raise duties on foreign-made vehicles without free trade agreements to as high as 50 percent, have not yet been implemented but are already sending shockwaves through the electric vehicle market. Industry experts warn that two companies in particular—China’s BYD and the U.S.-based Tesla—stand to be the biggest losers.

The move comes at a delicate moment when Mexico is navigating a complex economic triangle involving China and the United States, its largest trading partner. It highlights how domestic concerns, regional competition, and Washington’s pressure campaign on Beijing are converging in Mexico City.

Why Mexico Wants to Impose Tariffs

Officials in Mexico argue that the tariff push is designed to protect the country’s burgeoning auto sector from a flood of cheaper vehicles manufactured in China. Over the past two years, Chinese automakers have rapidly expanded their footprint in Latin America, using Mexico as a key entry point into the North American market.

The tariff plan—still awaiting congressional approval—would cover both gasoline and electric cars from countries that lack a free trade agreement with Mexico. This includes not only China but also South Korea, India, Indonesia, and Russia. However, analysts agree that the primary target is China, whose automakers have been aggressively undercutting competitors through low production costs and state subsidies.

For Mexico, which hosts some of the world’s largest auto assembly plants operated by U.S., European, and Japanese firms, the influx of Chinese vehicles represents a direct threat to local production. Policymakers argue that unless checked, this competition could erode jobs, suppress wages, and tilt the balance of the domestic market away from manufacturers that have long invested in Mexican plants.

Industries in the Crosshairs

While the proposed tariffs would apply broadly to imported cars, the biggest impact will fall on the electric vehicle segment. Mexico has emerged as one of the fastest-growing EV markets in the Western Hemisphere, buoyed by government incentives and rising consumer demand for affordable models.

BYD, China’s leading electric carmaker, has been at the center of this boom. In less than two years, it captured nearly half the EV market in Mexico, selling around 40,000 vehicles in 2024 alone. Its rapid rise was fueled by competitive pricing—made possible by cheap Chinese labor and subsidies at home—which allowed BYD to offer models at prices far below those of rivals.

Tesla, meanwhile, has relied heavily on its Shanghai Gigafactory to supply vehicles to Mexican buyers. All of its Model 3 and Model Y cars sold in Mexico over the past year were manufactured in China, putting the company squarely in the line of fire should the tariffs go into effect.

By contrast, the legacy U.S. automakers—General Motors, Ford, and Stellantis—would face little disruption. Thanks to a long-standing Mexican decree, companies with production plants inside the country can import a limited number of cars from non–free trade countries without facing the new tariffs. This carveout effectively shields the “Big Three” while leaving Tesla and BYD exposed.

Tesla and BYD: The Biggest Potential Losers

For Tesla, the proposed tariffs could derail plans to expand its presence in Mexico. The company had announced a massive factory in the northern state of Nuevo León that was expected to become its largest facility worldwide, creating thousands of local jobs. But construction was suspended last year amid global economic uncertainty and concerns over rising interest rates. Without that factory, Tesla remains dependent on imports from China—exactly the vehicles targeted by Mexico’s tariff proposal.

BYD faces a similar challenge. The company initially planned to build a local plant to cement its market position but abandoned the idea earlier this year, citing regulatory uncertainty and fears of straining Mexico’s trade relationship with the United States. Despite scrapping its factory plans, BYD has continued to post soaring sales, doubling its growth rate in 2025. A 50 percent tariff, however, would drastically alter its pricing model and threaten its ability to compete.

Both companies may be forced to rethink their strategies if the tariffs pass. Tesla could try to shift exports from its factories in Texas or California, though this would require reconfiguring logistics and may result in higher costs. BYD, without North American facilities, would be in a much weaker position.

China’s Response and U.S. Calculations

Beijing has already pushed back against Mexico’s proposal, warning that such tariffs would “seriously affect Mexico’s business environment.” The Chinese government has lobbied for reconsideration, emphasizing that Mexico risks jeopardizing its role as a gateway for Chinese companies into the Americas.

The United States, on the other hand, views the plan favorably. Washington has been pressuring allies to restrict Chinese electric vehicle imports, arguing that state-backed automakers distort global competition. Officials close to former President Donald Trump, who has returned to power with a renewed focus on tariffs, are likely to welcome Mexico’s move as aligning with U.S. efforts to box in Beijing.

But Mexico must tread carefully. While pleasing Washington may strengthen its trade relationship with the U.S., alienating Beijing could cut off investment flows and spark retaliation against Mexican exports.

A Complicated Context of Trade Wars

The Mexican tariff debate cannot be understood in isolation. It comes at a time when the U.S. is already entangled in tariff disputes with both China and Mexico.

Trump has reimposed steep duties on a range of Chinese goods, citing unfair subsidies and national security concerns. At the same time, he has threatened tariffs on Mexican exports over issues ranging from migration to agricultural trade. For Mexico, proposing new tariffs on China risks drawing it further into Washington’s confrontations—while also leaving it vulnerable to U.S. economic pressure.

Moreover, the timing complicates Mexico’s own trade agenda. The U.S. is currently engaged in sensitive negotiations with China over technology and energy, while Trump has indicated that talks with India will begin soon. Against this backdrop, Mexico’s alignment with U.S. tariff strategies could weaken its ability to chart an independent trade policy.

For now, it is important to stress that the Mexican tariff plan remains only a proposal. It must still be approved by Congress, where President Claudia Sheinbaum’s Morena party holds a commanding majority. Analysts expect passage is likely, but not guaranteed, given the potential risks of escalating tensions with China.

If enacted, the tariffs would take effect later this year, reshaping Mexico’s auto market and sending ripples across global supply chains. For Tesla and BYD, the costs could be immediate and severe. For the wider industry, the move underscores how Mexico is becoming an increasingly central player in the global struggle over electric vehicle dominance.

(Adapted from MarketScreener.com)

Categories: Economy & Finance, Regulations & Legal, Strategy