Blocked from the U.S. by tariffs, Chinese electric vehicle makers have looked elsewhere to sell their high-tech cars. But as Mexico has emerged as a hot spot for Chinese EVs, Washington officials worry the country may be used as a “backdoor” to the U.S. market.
Last year, China was the leading car supplier to Mexico, exporting $4.6 billion worth of vehicles to the country, according to the Mexican Ministry of Economy. Even customers wary of EVs have been won over by affordable price tags. Tesla rival BYD sells its Dolphin Mini in Mexico for around 398,800 pesos, or about $21,300, a little over half the price of the cheapest Tesla.
“The Chinese automakers came to the country very aggressively,” said Juan Carlos Baker, former Mexican deputy minister for international trade. “They have very good promotions. It’s a good product that sells at a very reasonable price.”
Some Chinese EV makers, including BYD, have been looking for a further foothold in North America by exploring factory sites in the Mexican states of Durango, Jalisco and Nuevo Leon. The foreign investment would be an economic boost for Mexico. BYD has claimed that a plant there would create around 10,000 jobs.
But U.S. officials worry this could be a part of a larger strategy by Chinese automakers to skirt trade restrictions and enter the American market.
“Mexico is an attractive production platform, not only for Chinese companies, but for other companies as well, in part because of that free trade access that it has to the American market,” said Scott Paul, president of the Alliance for American Manufacturing. “And it can do something that in trade terms is called circumvention.”
That free trade access is part of the United States-Mexico-Canada Agreement (USMCA), a revised iteration of the North American Free Trade Agreement (NAFTA) that removed tariffs on many goods traded between the North American countries starting in 2018. Under the agreement, if a foreign auto company manufactures in either Canada or Mexico and can prove that the building materials are sourced locally, the goods can be exported to the U.S. virtually duty-free.
“We’ve seen China do this in other types of manufacturing as well, from appliances to auto parts to steel,” said Paul. “For more than a decade now, China, the United States have been playing a high-stakes game of whack-a-mole when it comes to trade policy tariffs.”
While meeting the USMCA requirements is difficult, the potential scenario terrifies U.S. lawmakers and auto companies.
“If [Chinese EV makers] are able to set up in Mexico, they would definitely pose an imminent threat to American automakers, if for no other reason, because their costs would be lower,” said Michael Dunne, CEO of Dunne Insights.
“We [the U.S.] are just starting to scale up our EV industry, so it’s what I call an ‘infant industry,'” said Paul. “And like any infant, it’s at a very delicate time in terms of development and has to be massively protected.”
Experts say pressure from the U.S. leaves Mexico in a difficult position of maintaining its crucial relationship with America without being overly friendly to Chinese investment.
Watch the video to learn more about how Mexico has become a hot spot for Chinese auto companies and how the next administration may impact EV trade policies.
Cryptocurrencies are not issued by banks but rather on the basis of computer code. Bitcoin is one example of a cryptocurrency that’s created by computer algorithms solving increasingly difficult math problems.
Bitmain, Canaan and Ebang are all Chinese companies that make money selling high-tech systems and parts to power mining. Together they are the dominant players in this business.
The three companies are operating in an industry that is young and unpredictable, but they plan their Hong Kong IPOs under difficult market conditions. Since December when bitcoin’s price soared up to almost $20,000, has fallen by two thirds. The prices of other cryptocurrencies, like ethereum, have also plummeted.
Bitmain, a Chinese mining equipment manufacturer, warned investors that if the price of cryptocurrency suddenly drops then demand for mining hardware will drop.
Bitmain, the largest bitcoin mining equipment manufacturer in the world.
Hong Kong, the stock exchange where these companies will list, has entered a bear-market in this month. Its previous high was more than 20 percent lower. This is due to concerns over China’s slowing economy and the trade war between the United States and China.
These mining tech companies are yet to announce when they will go public, or the amount they hope to raise. Bitmain, Canaan and Ebang declined to give interviews.
Benjamin Quinlan of Hong Kong’s Quinlan & Associates, a financial services consultancy firm founded by Benjamin Quinlan said that these firms may be trying to sell before the markets take an even deeper nosedive.
He emphasizes that cryptocurrency is slowly becoming accepted by mainstream investors, despite recent failures. The revenues of the three mining firms are also still increasing. The industry is facing major challenges.
One of the most important is how government regulates digital currencies. China prohibited the majority of bitcoin-related activities last year. Authorities are trying to force them out.
Bitcoin miners require large amounts of energy in order to operate their computing rooms around the clock. Some utilities are already charging higher rates for cryptocurrency miners.
Quinlan stated that “increasing the price of mining bitcoin will reduce the demand for equipment and hinder the performance of the companies.”
The mining of cryptocurrencies has become less profitable than in the past.
The demand for Bitcoin has increased dramatically in the last year. The profits are then spread out over a larger number of users. This could affect future mining equipment demand.
How long will the mining boom continue?
According to the documents announcing their intentions to list, BitmainCanaan, and Ebang all had profitable financial years in their last year.
Leilei Wan, consultant with research firm Kapronasia in Shanghai, said that staying on the right side of the ledger will be “a massive challenge”.
They are aware of their risks and trying to adjust. They say, for example, that they will increase investment in chip technology which can be used to improve artificial intelligence, cyber security and connected devices.
The gambler lost almost everything after losing his Bitcoins
The Chinese government is not only against cryptocurrencies, but also wants to boost the country’s technology. This includes computer chips. Chinese firms are heavily reliant upon technology from abroad, particularly the United States.
Wang stated that it remains to be determined whether [the cryptocurrency companies] will pivot successfully.
Currently, the fate of these companies is linked to that in general.
Quinlan predicts that “cryptocurrencies” will fall out of favour in the future if mainstream adoption does not increase. He said that mining equipment manufacturers “will have a very difficult time surviving when the crypto market as a group withers.”
Bitcoin bulls still hope that bitcoin can recover as more financial exchanges, and large companies begin to treat it seriously.
This week, Mike Novogratz told CNN that he believes cryptocurrency prices will rise as more people become comfortable using it.
