What to Expect From China in the Mexican Automotive Market

We have recently heard more about Chinese vehicles in Mexico. Why?

To start, let’s talk about some background facts that may help us better understand the momentum and basis for our analysis.

China started building not very complex vehicles in the 1950s (trucks, buses, commercial vehicles and some sporadic vehicles for government officials). China's automobile industry had mainly Soviet origins (plants and licensed auto design were founded in those times, with the help of the USSR) and had small volumes for the first 30 years, not exceeding 100–200,000 per year. 

In the ‘80s and early ‘90s, the Chinese government began to approve joint venture partnerships with major global international automobile manufacturers in order to develop China's domestic production capabilities. Technology and knowledge transfers through these partnerships were an integral part of the early development of its modern industry. Around 1980, Shanghai (now SAIC) started assembling around 5,000 vehicles to be used as cabs, beginning with volume-assembly passenger car production in the country. By 1992, China was already assembling 1 million vehicles and grew to reach 2 million vehicles by 1998 and 8.2 million by 2008, reaching the top position in number of vehicles assembled, surpassing the US. 

Since then, Chinese vehicles have become increasingly sophisticated as a result of partnerships with major foreign automakers (Volkswagen, GM, Toyota, Honda, Nissan, Mazda, Hyundai and Kia) designed to foster “technological cooperation.” A government policy liberalized the automotive sector in that country in some key aspects but it required foreign manufacturers to undertake joint ventures with local partners to obtain market access. Offering an enormous growing market and cheaper labor cost, foreign automakers gained production capacity at reasonable cost and Chinese manufacturers obtained technical know-how that led them to become the world leaders in production and sales volumes and placing themselves among the best in technological innovation in the industry. 

Today, China is the world's most populous country, exceeding 1.4 billion people. China’s population is equivalent to 18.47 percent of the total world population.  As a reference, Mexico’s population represents only around 9.2 percent of the total population. China continues to be the world's largest vehicle market, both in annual sales and manufacturing output. According to data from CAAM (China Association of Automobile Manufacturers), around 26.275 million automobiles were produced and sold respectively in 2021 and those figures continue to  grow year over  year. Domestic production is expected  to reach 35 million vehicles by 2025.

China has been among the fastest-growing vehicle exporters since 2020 (up 125.3 percent). By 2021, Mexico was in fifth place and China in 12th among the top exporters and China continues to grow its international presence annually.

This export growth in recent years (after the pandemic) is due to the fact that some important Chinese companies (several of them partially owned by the government) started looking for new markets where they could expand their operations to make up for  declining markets, such as Russia, where sales volumes obviously have been dropping in the wake of the war with Ukraine. To that end, Mexico is a good bet.

Taking advantage of the semiconductors (chip) shortage that obliged vehicle manufacturers to lower their production volumes, and the existing overdemand in the Mexican market that traditional brands already established in our country were unable to supply, created the perfect scenario for new and “unknown” brands (at least in Mexico) to come. That is the reason why, at the end of 2020, new Chinese manufacturers started coming into our market directly.

Although, there have been previous joint venture efforts, such as FAW (that failed), JAC, BAIC, JMC and Changan, in October 2020 ,SAIC landed directly (without any joint venture) into Mexico and started conquering the Mexican market with its MG (Morris Garage) brand. It was followed by Chery (Chirey) and BYD (Beyond Your Dreams), which  first arrived with electric vehicles for public transportation.  Several others will come while Those  that are already here will surely broaden their product portfolio in the near future. 

By 2023, we will start seeing a more complex market in Mexico where traditional brands will see lower market share and newcomers will gain ground in the market based on their quality, price-value relationship, innovation and technology, from their ICE (Internal Combustion Engine) vehicles to HEV (hybrid electric vehicles), PHEV (plug-in electric vehicles) and followed by the new EVs (electric vehicles).

We will also continue receiving  other automotive products from China in some indirect ways. Traditional American brands, such as GM and Dodge, BMW and Peugeot, among others, are bringing more and more vehicles into our market that have been assembled in China.

Now is the time to change our mindset about Chinese quality and understand that they have learned, evolved and are now leading, among other countries, the development of new ideas. They are now ready to conquer new markets and grow their footprint in new countries, mainly with their high-tech EV vehicles.