BYD taking on Tesla Model 2 with Mexican EV factory as US fears the next Giga Shanghai there

Last year, Tesla announced that its newest Gigafactory will be built in the Mexican state of Nuevo Leon near the Texas border. It should be ready for the second production phase of Tesla's upcoming cheap mass market EV, tentatively named the Model 2, with the initial batches coming from Giga Texas.

The US government, however, is worried that Tesla is trying to replicate its efficient Giga Shanghai factory in Mexico, with all of the vast Chinese supplier network that this entails. Chinese auto parts makers have already found a backdoor to the US market through their Mexico subsidiaries and are avoiding tariffs with local factories and direct investment.

The import of made-in-Mexico Chinese parts surpassed $1 billion for the first time last year but Chinese companies are looking to take advantage of US EV and battery subsidies, too. The latest step in that direction comes from none other than BYD, the world's biggest EV maker. BYD is now actively exploring an EV factory on Mexican soil, including in Nuevo Leon where Tesla's Giga Mexico is taking shape.

With such a factory, BYD may not only be able to sell its electric cars in the US, but may even collect US green energy tax credits as it will be covering all of the current free-trade agreement requirements to do so. That is why President Biden's administration is actively exploring how to prevent the flood of made-in-Mexico Chinese EVs, batteries, or auto parts by various initiatives that go beyond tariffs. 

The US government is apparently even ready to ban Chinese EVs on national security grounds, and has drafted a legislation that would restrict "smart" cars from Chinese makers regardless of the country they are assembled in. This is why Tesla's Giga Shanghai replica in Nuevo Leon has the White House worried as it has to strike a fine balance between restricting stealth Chinese imports and stifling innovation, competitiveness, or the productive investment of US companies.

BYD's country manager for Mexico stressed that "overseas production is indispensable for an international brand" so the world's two major EV makers could at one point be duking it out with Mexican factories building cheap mass market EVs like the Tesla Model 2 and BYD Seagull, both relying on Chinese suppliers.

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