By Chinese electric-vehicle giant BYD is exploring the possibility of constructing a car assembly plant in Mexico as a strategic move to enter the North American market. This development should serve as a wake-up call for competitors like Tesla, General Motors, and Ford Motor, urging them to start making preparations immediately.
According to a report from Nikkei Asia on Wednesday, BYD is seriously considering the establishment of a car plant in Mexico. This move would provide BYD with a gateway to introduce their cars into the North American market. When approached for a comment regarding their expansion plans, BYD did not provide an immediate response.
Deutsche Bank analyst Edison Yu stated in a report on Thursday that while BYD did not specify the exact location, it is likely that Nuevo Leon and Bajio are potential candidates. It is worth noting that Nuevo Leon is the same region where Tesla is currently constructing a new car plant.
“After establishing themselves as one of China’s top electric vehicle market players, BYD is now expanding its presence overseas. In fact, they managed to deliver 243,000 units across 70 different countries last year,” Yu added. However, it is important to highlight that none of BYD’s exports have reached the United States. Given the 25% tariff imposed on Chinese car imports by the U.S., it is imperative for BYD to engage in local production. Exporting from China would prove to be an unfeasible option. If BYD were to reduce prices in order to counterbalance the tariff, their estimated loss per car would range between $4,000 and $5,000, excluding shipping costs, based on recent financial performance.
Considering the necessity of production, it begs the question: How much time does Tesla and other U.S. automakers have to prepare? Constructing a plant typically takes one to two years. Moreover, BYD would also have to establish a distribution network in the U.S.
To gain some perspective on how a new entrant can make an impact in the U.S., we can look at Toyota Motor’s journey. Toyota began selling cars in the U.S. in 1958, with a mere 258 vehicles sold that year. By 1963, Toyota had already established 125 dealerships.
During that time, import-focused dealerships did not pose a significant threat to the domestic industry. Wards, an automotive data provider, reported that Toyota’s market share in the U.S. during the 1970s was approximately 1%. Toyota made its initial manufacturing investments in the U.S. in 1972 and 1974. Eventually, in 1984, Toyota and GM formed a joint venture that led to the establishment of the Fremont, California plant, which was later acquired by Tesla.
Toyota’s Market Share Growth
Toyota experienced significant market share growth in the 1970s and 1980s, gaining about 6 percentage points through its manufacturing expansions. Presently, Toyota operates 13 plants in North America, including eight vehicle assembly operations. In the year 2023, Toyota sold an impressive 2.2 million cars in North America, securing approximately 14% of the U.S. market.
Impact of Toyota on Domestic Auto Makers
The establishment of U.S. manufacturing capacity by Toyota had a profound impact on domestic auto makers. It took around 20 years for the market-share gains made by Toyota to significantly affect the results of these companies. Today, with advancements occurring at a faster pace, U.S. auto makers have roughly a decade to prepare for upcoming challenges. The question remains: how can they effectively prepare?
A New Player in the Market: BYD
BYD is a notable player that produces low-cost battery EVs and plug-in hybrid vehicles while remaining profitable. One factor contributing to their success is their ability to manufacture their own batteries, which keeps costs down. Although U.S. auto makers are also developing their battery capacity to neutralize this advantage, they still face the challenge of lower labor rates in Mexico. However, it is crucial to note that U.S. manufacturers are actively establishing or planning Mexican capacity to address this issue.
The Key to Competitive Success: Product Development
Despite the aforementioned challenges, the ultimate determinant of competitive success lies in product development. Domestic auto makers must prioritize the creation of lower-priced and attractive electric vehicles. For instance, the 2024 Chevy Equinox EV, priced at $35,000, is set to hit the market in mid-2024.
Ford’s Focus on Gen-Two EVs
Ford is currently focusing on the production of gen-two EVs, building upon their initial offerings such as the Mustang Mach-E and F-150 Lightning. However, it’s important to note that these vehicles are essentially modified gasoline-powered platforms, not specifically optimized for electric technology. As part of their gen-two lineup, Ford plans to introduce a smaller and more affordable EV.
Tesla’s Anticipated Vehicle Platform
Meanwhile, Tesla is diligently working on its next vehicle platform, which will serve as the foundation for a battery electric vehicle with a potential starting price below $30,000. If everything goes as planned, this vehicle could hit the roads by 2025.
Looking Ahead
Considering the rapidly evolving landscape, it is crucial for all players in the industry to act swiftly. In the midday trading, BYD’s U.S.-listed American depositary receipts witnessed a 3.2% increase, indicating market confidence. Similarly, the performance of the S&P 500 and Nasdaq Composite saw respective gains of 0.4% and 0.7%.
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