Chinese automaker BYD, known for its electric vehicles (EVs), is contemplating the idea of building a new car factory in Mexico, according to Nikkei Asia. This move could potentially allow BYD to take advantage of the US-Mexico-Canada Agreement (USMCA) and expand its footprint in North America.

BYD, whose name stands for Build Your Dreams, had a remarkable year in 2023, selling over 3 million cars globally. Among these, the company sold 1.6 million battery-electric vehicles (BEVs) and 1.4 million hybrids. In fact, BYD's sales of BEVs in China surpassed those of Tesla in the final three months of 2023, thanks in part to a diverse portfolio that includes smaller and more affordable vehicles.

While most of BYD's sales are currently concentrated in China, the automaker has clear global ambitions. Beyond its existing manufacturing plants in China, BYD is already in the process of planning or constructing factories in countries like Thailand, Hungary, and Brazil. The possibility of opening a plant in Mexico is now being assessed, with potential locations in Nuevo Leon or the Baijo region being considered.

Mexico presents an attractive proposition for BYD to establish a new production facility. The country boasts a skilled workforce, with the automotive sector employing over a million people. Additionally, Mexico is a significant producer of cars, manufacturing around 3.7 million vehicles annually. Notably, BMW, Kia, Stellantis, and Tesla have already announced plans to manufacture EVs in Mexico.

Building vehicles in Mexico would also enable BYD to leverage the USMCA, fostering lower prices for its EVs. This advantage would be especially beneficial if BYD aims to target the underserved lower end of the new car market. Moreover, under the new clean vehicle tax credit system outlined in the Inflation Reduction Act of 2022, the final assembly of a vehicle must occur in North America to qualify for the tax credits. While certain provisions in the law might limit BYD's eligibility for the full tax credit, the company could still benefit from this system.

The potential move by BYD to set up a factory in Mexico has raised concerns among some US-based entities. The Alliance for American Manufacturing has called for strengthened protections in the USMCA to prevent non-market economy companies, like those headquartered in China, from establishing factories in Mexico or Canada to receive preferential treatment. Tesla CEO Elon Musk has also expressed apprehension about the rise of Chinese automakers, stating that in the absence of trade barriers, they could pose a threat to established car companies worldwide.

As BYD continues to explore its global expansion, the decision to establish a manufacturing plant in Mexico could offer significant opportunities for the company to extend its presence in North America and capitalize on the increasing demand for electric vehicles.