In 2023, Chinese automaker BYD announced an ambitious project to build a 150,000-unit electric vehicle (EV) plant in Mexico, epitomizing the promise of nearshoring. Mexico’s low labor costs, robust supply chains, and duty-free access to North America under the U.S.-Mexico-Canada Agreement (USMCA) made it a strategic gateway for Chinese manufacturers aiming at the booming U.S. EV market.
Two years on, this vision has collapsed. In July 2025, BYD indefinitely shelved the project. Executive Vice President Stella Li cited “geopolitical issues significantly impacting the automotive industry,” signaling the project’s suspension amid rising China-U.S. tensions.
The immediate catalyst was the tariffs put in place by U.S. President Donald Trump.
In September 2024, Trump – then a former president and the Republican nominee for the 2024 presidential election – proposed a prohibitive 200 percent tariff on Chinese-brand vehicles assembled in Mexico. He explicitly said such a tariff would be designed to make Chinese cars built in Mexico uncompetitive in the U.S. market.
Otherwise, the U.S. “will not have any [automobile] manufacturing plants,” Trump warned. “China is going to take over all of them because of the electric car.”
Trump’s proposed tariff dwarfed the existing 100 percent levy the Biden administration had just added to Chinese EVs at the time. While he hasn’t implemented the change since re-entering the White House, Trump did implement an additional 25 percent tariff on all automotive imports, although close allies like Japan and South Korea won lower rates in trade negotiations.
The tariff burden has effectively frozen BYD’s $3 billion investment, disrupting negotiations with Mexican states such as Puebla and Jalisco, and creating uncertainty across the automotive sector.
Before the latest iteration of Trump’s trade war, Mexico offered clear advantages for Asian automakers, including BYD and other Chinese firms. Auto industry wages average about $4 per hour, significantly lower than comparable U.S. wages. Yet USMCA allowed tariff-free exports to the U.S. if 75 percent of vehicle content is sourced in North America. Mexico also benefits from extensive transport infrastructure, including dual-ocean ports and rail connections to major U.S. markets, significantly reducing transit times compared to direct shipments from Asia.
For Chinese companies, Mexico also represented a hedge against increasing U.S. and European antidumping investigations. Companies such as BYD, SAIC MG, and Chery expanded dealership networks, while JAC Motors began local assembly operations as early as 2017.
However, the growing bipartisan consensus in Washington now views Chinese EVs as strategic threats. Trump’s tariffs effectively weaponized border access, forcing automakers to reconsider their production strategies.
Even before Trump’s escalation, Beijing had expressed reservations. China considers its companies’ strength in the EV sector to be a key plank of its economic security plan. In March 2025, China’s Ministry of Commerce reportedly delayed approval for BYD’s Mexican venture due to security concerns about proximity to the U.S., potentially exposing sensitive battery and software technologies to IP theft. Instead, Chinese authorities are now encouraging investment in Belt and Road partner countries such as Brazil, Hungary, and Thailand.
This aligns with Mexican President Claudia Sheinbaum’s statement from November 2024, indicating that her administration had not received an official investment proposal from BYD. In other words, the factory never got past the theoretical stage – even before Trump was re-elected.
Privately, Mexican officials recognize their dilemma: they can either attract billions in Chinese investment or maintain harmonious relations with their primary trading partner, especially with USMCA scheduled for review in 2026.
The most immediate impact will be to diminish Mexico’s prospect of becoming Latin America’s primary EV hub. Tesla has also postponed its Nuevo León gigafactory, as Trump’s administration moved to revoke consumer credits for EV purchases. Mazda, Nissan, and Stellantis have similarly placed investments on hold. Suppliers who ramped up for EV production, like Querétaro-based wiring harness maker Nexxus and lithium-ion cathode startup Trina in Sonora, now face uncertain futures.
Conversely, Brazil stands to gain significantly. BYD has already begun constructing a $1 billion plant in Bahia for assembling passenger cars and electric trucks targeting South America. SAIC MG expanded its São Paulo factory, while GAC Motor is exploring Rio de Janeiro as an assembly location. Brazil’s modest 4 percent tariff on electric-powertrain imports makes it increasingly attractive compared to the steep potential duties facing Mexico.
Alberto de la Fuente, president of Mexico’s National Auto Parts Industry, emphasized the economic impacts, noting that each additional tariff percentage erases roughly $150 in profit per compact EV, severely impacting competitiveness.
This trend risks creating a divided Latin America, with Mexico retaining traditional combustion-engine manufacturing for North America, and Brazil emerging as the region’s leading EV production base for Mercosur and African markets.
“It makes little sense for BYD to enter Mexico without tariff-free access to U.S. markets,” explained Gregor Sebastian, a senior analyst at Rhodium Group. “Until trade uncertainties resolve, Chinese investments will likely favor Brazil and Southeast Asia.”
The effects extend to the entire supply chain for electric vehicles and EV batteries. Sonora’s lithium industry, which expected investments from major Chinese battery makers, may now default to raw exports to China, limiting regional value-added jobs. Initiatives such as Nuevo León’s T-MEC rail line and Jalisco’s dry port at Ocotlán, designed as EV export hubs, now face uncertain prospects. Mexican technical colleges that introduced EV-specific training programs risk oversupplying graduates in a shrinking local market.
“Once tariffs reach prohibitive levels, they transform corporate calculus,” noted Maaike Okano Heijmans from the Clingendael Institute, “forcing companies to reconfigure global manufacturing footprints.”
BYD’s halted Mexican venture underscores the global trend of clean-tech supply chains fracturing along geopolitical fault lines. Asia-Pacific companies now navigate competing blocs. The United States and its allies are enforcing stringent industrial policies against Chinese components, while China-driven networks are being fostered by Belt and Road funding. The European Union and select middle powers are attempting neutrality while concerned about subsidized Chinese competition.
Going forward, Mexico has a few options. It can choose to prioritize manufacturing batteries over EVS. Collaborations with battery manufacturers like CALB and LG Energy Solutions, supplying multiple automakers, are politically safer investments.
Mexico can also seek to tap into U.S. International Development Finance Corporation grants designed to “friend-shore” critical mineral projects, such as Mexico’s lithium developments.
The government could also seek to negotiate a solution that will allow it to build an EV manufacturing industry with an eye toward the future, when tariff policies might moderate. This might involve agreements to limit Chinese EV production exclusively for local markets, employing digital tracking to prevent re-export to the United States. It’s not clear how attractive this would be to Chinese firms, however.
For now, as long as Trump’s tariffs persist, Chinese automakers will avoid Mexico, even while U.S. companies look to expand domestic production amid higher consumer costs. More broadly, the EV market will continue to fracture, with Chinese manufacturers dominating emerging markets while U.S., Japanese, and Korean brands solidify their positions in North America, and Europe remains contested.
BYD’s withdrawal underscores that geopolitical strategies now define industrial development as significantly as traditional factors like cost and logistics. Until tariff uncertainties subside, Mexico’s role in global EV production remains vulnerable to political shifts, reaffirming that global business decisions increasingly hinge upon geopolitical landscapes rather than economics alone.