Latin America’s EV Boom: China, the U.S., and the Race for Resources

The surge in Chinese EVs in Latin America is affecting the region’s industrial landscape and could significantly alter trade dynamics in North America.

oct. 11, 2024

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Chinese electric vehicle (EV) sales in Mexico and Latin America are rapidly expanding, presenting both opportunities and challenges for the region and its trade relationships, especially with the United States.

An image representing Latin America's electric vehicle (EV) boom, highlighting China's BYD and other EV manufacturers. In the center, show a map of Latin America with electric vehicle icons (e.g., sleek modern cars) scattered across key countries like Brazil, Mexico, and Chile. Overlay flags of China, the U.S., and Mexico on opposite sides, suggesting geopolitical tension. Surround the map with images of lithium mines, EV batteries, and cables, emphasizing the race for resources like lithium in South America. The overall tone should convey competition and innovation.

For the past couple of years, China has positioned itself as the global leader in electric vehicles (EVs) manufacturing. In 2023, the country accounted for more than 60% of roughly 14 million battery-powered EVs produced worldwide. At the forefront of this rise, the company BYD (short for “Build Your Dreams”), has become the largest EV manufacturer globally since 2022, with more than 3 million units produced in 2023.

The Rise of Chinese EVs in Mexico and Latin America

BYD and other Chinese automakers are today making significant headway in Latin America. Markets such as Mexico, Brazil and Argentina represent great opportunities for low-cost but modern EVs. They are also alternatives to the US market where Trump and Biden administrations have imposed high tariffs on the importation of Chinese vehicles, as recently as last month when Joe Biden raised this tariff to 100%.

Mexico in particular has emerged as a central hub for Chinese EV production and exports, benefiting from the country’s location and trade agreements. In Mexico, about 50,000 Chinese EVs should be sold this year and this figure could double in 2025. BYD’s upcoming plant in Mexico, expected to create 10,000 jobs, will enable the automaker to ramp up production, reduce costs, and potentially bypass U.S. tariffs by assembling vehicles within the region.

In South America, countries like Brazil and Argentina are experiencing a similar trend. In Brazil, Chinese car imports surged by 450% year-on-year in the first quarter of 2024 and BYD accounted for 40% of the EVs sold in the country during that same period. Brazil is seen as a major market for BYD. In March, the Chinese company began the construction of a new manufacturing complex in Campinas, near Sao Paulo.

More recently, Peru’s government invited BYD to set up an assembly plant in the country, where lithium resources are abondant, as both countries keep strengthening trade relations.

Trade Tensions and U.S. Concerns

This rapid expansion highlights China’s strategic focus on Latin America as a market for its cost-efficient EVs, and a stepping stone to access the U.S. market.

While Chinese investments in Mexico and Latin America are a boon to local economies, they have raised red flags in Washington. U.S. automakers and policymakers are concerned that low-cost Chinese EVs could flood the American market, undermining U.S. EV producers. U.S. electrical vehicles are currently sold at roughly double the price of Chinese ones, putting at risk companies and millions of jobs. Critics argue that Chinese companies such as BYD benefit heavily from national subsidies and should therefore be subject to high tariffs to ensure fair competition.

But despite U.S. tariffs on Chinese-made vehicles—raised to over 100% by the Biden administration—Chinese manufacturers can still bypass these barriers by assembling cars in Mexico. Under the U.S.-Mexico-Canada Agreement (USMCA), cars assembled in Mexico could potentially enter the U.S. market at much lower tariffs if they meet certain content and labor requirements. This issue is seen as a major threat by Washington and is expected to feature prominently in future USMCA reviews, with U.S. officials keen to block what they perceive as a Chinese backdoor into the American market.

Should he be elected on November 5th, former President Donald Trump has already threatened a 200% tariff on Mexican-assembled vehicles if Chinese EV makers are seen exploiting the trade deal. These trade tensions could deeply affect U.S.-Mexico relations, which are critical for both countries given their integrated automotive industries.

The Lithium Factor: Latin America's Strategic Role

Central to the success of Chinese EV makers in the region is access to lithium, a key component of electric vehicle batteries. Latin America’s "Lithium Triangle," encompassing Argentina, Chile, and Bolivia, holds over half of the world’s lithium reserves. Chinese companies, including BYD, have aggressively pursued lithium projects in these countries, positioning themselves as major players in the global battery supply chain. BYD’s potential lithium project in Chile underscores China’s strategic focus on securing the raw materials necessary for its EV production.

The U.S., meanwhile, faces a challenge in countering China’s dominance in the lithium supply chain. While the U.S. has sought to increase domestic lithium production, it remains heavily reliant on imports from Latin America. This reliance could complicate efforts to reduce Chinese influence in the EV market, especially as Latin American countries balance relationships with both China and the U.S.

Geopolitical and Security Concerns

In addition to trade and economic concerns, the rise of Chinese EVs in Mexico and Latin America poses potential security risks. Modern EVs are equipped with advanced sensors and cameras, raising fears that Chinese-made vehicles could be used for espionage. The Biden administration has even suggested that these cars could be remotely disabled or accessed, creating further tensions.

In response, some U.S. officials are pushing for stricter national security measures to block Chinese EVs from entering the American market. There is also speculation that the U.S. might renegotiate aspects of the USMCA to limit Chinese EV investments in Mexico. However, Mexico’s deep economic ties with both China and the U.S. make this a delicate balancing act for the Mexican government.

The rapid expansion of Chinese EVs in Mexico and Latin America presents both opportunities and challenges. On one hand, it brings investment and job creation to the region. On the other, it threatens U.S. automakers, raises trade tensions, and adds complexity to geopolitical relationships. As the U.S. election approaches, the issue of Chinese EVs—and the lithium supply chain they depend on—will likely become a flashpoint in North American trade relations.

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Views and opinions expressed in this publication are solely those of the author. They do not represent, and should not be construed as representing, the official positions of the author's current or any previous company.