EV giant BYD is getting serious about a Mexico plant, as Chinese EV makers hope the country can be a path into the U.S.

The Chinese EV maker is considering opening a plant in Mexico, BYD Mexico manager Zhou Zou told Nikkei Asia. Zou continued that international car brands needed to have overseas production, and that Mexico was a market ripe for growth.

He did not reveal the locations that BYD is considering, but the EV maker is negotiating with national and local governments over a location, Nikkei Asia reports.

BYD isn’t the first Chinese carmaker to explore setting up shop in Mexico. JAC Group and MG Motor, owned by Shanghai-based SAIC, already have operations in the country. JAC operates an assembly plant through a joint venture with Mexican billionaire Carlos Slim, while MG has a parts distribution centre in central Mexico.

SAIC is also reportedly planning to invest $1.5 billion to $2 billion to build a factory in Mexico. Chery, another Chinese company, is also interested in expanding production in Mexico.

BYD has already announced several new facilities outside of China. In Asia, the company is eyeing a $1.3 billion investment to set up an electric vehicle factory in Indonesia, and is also expected to start production in Thailand this year. The company has also chosen Hungary and Brazil as manufacturing bases for the European and Latin American markets.

Why Mexico?

There are two reasons why Mexico is appealing to BYD and Chinese EV makers more generally.

Mexican consumers are increasingly buying Chinese-made vehicles; cars from China account for about a fifth of the Mexican car market. The Latin American country was the second-most-popular destination for Chinese auto exports in 2023, behind Russia. (Chinese companies flocked to Russia to fill the gap by Western carmakers, which withdrew from the Russian market following the invasion of Ukraine)

Yet there’s also the potential of lower export costs of selling Mexico-made BYD vehicles in the U.S. market.

Chinese EVs are currently subject to a 25% tariff in the U.S., on top of a 2.5% tariff on imported cars. U.S. consumers thinking about buying a Chinese electric car will also have to consider new rules from the Biden administration that deny tax credits to EVs using battery components sourced from China.

Cars made in Mexico, on the other hand, can be exported to the U.S. tariff-free thanks to the U.S.-Mexico-Canada Agreement, so long as three-quarters of the vehicle’s parts were built in North America.

Mexico surpassed China as the leading source of imports into the U.S. in 2023, the first time in over two decades. The reversal follows tough rhetoric in Washington, by both political parties, on the U.S.’s relationship with China. The Biden administration kept the preceding Trump administration’s tariffs on Chinese goods, and is urging companies to consider “friendshoring” and “nearshoring” supply chains and divert them from China.