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China’s EV drive accelerates in Latin America

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BYD electric cars at the Summer Auto Show in Yantai, China, 16 June 2024 (Photo: Nurphoto via Reuters/Costfoto).

In Brief

Amid tariffs from the US and potential protectionist measures from the EU, China is making headway in the Latin American market by exporting electric vehicles (EVs) and investing in local production. The export of cheaper Chinese EVs has increased drastically, particularly in countries like Brazil and Mexico where companies have established local research and development, production and sales centres. China's growth in Latin America's EV and lithium mining industries could have significant implications for the region, including EV adoption and emission projections, though the environmental and social effects of expanded lithium mining are yet to be fully realised.

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As the United States slaps tariffs on Chinese electronic vehicles (EV) and the EU increases its own protective measures, the Latin American market remains relatively open to imports of Chinese cars and investment in local EV production and critical minerals. Efforts in Washington and Brussels to level the EV playing field will likely result in trade diversion to Latin America and other regions, encouraging a process already well underway.

China has been active in expanding its capacity in overseas EV sales and manufacturing, with a growing focus on developing markets. Even amid protectionist measures in the Global North, China’s total exports of low-cost EVs jumped 102 per cent year-on-year from 2021 to 2022, with Chinese companies exporting nearly 630,000 fully electric vehicles in 2022.

Latin America features prominently in these numbers, though it still trails behind developed markets and those closer to China, such as Southeast Asia, which represent 10 per cent of China’s total EV exports. Latin America made up 6.7 per cent of China’s total EV exports in 2022 and the value of China’s sales to the region more than doubled in 2023, reaching US$2.7 billion.

In Latin America, whether in pursuit of electric vehicle markets or critical minerals, Chinese companies have adopted an incremental approach to trade and investment. In the case of EVs, Chinese manufacturer BYD first sought to establish itself as reputable partner in the sale of commercial vehicles such as electric buses, taking advantage of a supply gap. Only after establishing itself as a trusted supplier of electric buses and other commercial vehicles did BYD venture into electric car sales, focusing on exporting vehicles but also on localising production and R&D.

Brazil is among the few Latin American countries where Chinese manufacturers — such as BYD and Great Wall — have established localised R&D, production and sales centres. As early as 2014, BYD focused on exporting electric buses and commercial vehicles to Campinas. It later established battery and photovoltaic manufacturing in Campinas, along with an R&D centre focused on smart grids, LED technology and solar panels. In 2019, the company announced its intent to build a US$2.7 million battery factory in Manaus. BYD has now scaled to consumer EV manufacturing through the construction of a US$611 million EV and battery factory in Bahia.

In Mexico, Chinese company activity has materialised gradually, though suppliers have flooded Mexican manufacturing hubs over the past two years. Rapid growth in Chinese parts and car making in Mexico has prompted concerns in the United States about China’s use of the United States–Mexico–Canada Agreement to avoid US tariffs. But as in Brazil, and consistent with its ‘first business, then consumers’ strategy, BYD is interested in manufacturing EVs in Mexico for the Mexican market too.

With at least 60 per cent of the world’s lithium reserves, Latin America has attracted investment from numerous international firms, including top Chinese lithium mining companies such as Ganfeng and Tianqi. China’s assets in Argentina were mostly acquired through acquisitions from foreign mining companies that had already been awarded lithium concessions. Over time, China has assumed larger stakes in these fields so that it is now the sole operator of several mines. China’s progress has been slower in Bolivia and Chile as both consider how to govern lithium mining.

China’s growing presence in both industries has big implications for the region, including for the adoption of EVs and related emission projections. Lithium and other critical minerals in Latin America support the EV supply chain, the energy transition and other technologies. The environmental and social effects of increasingly expansive lithium mining in the region have yet to fully materialise. Critical metals and minerals play a key role in reducing greenhouse gas emissions but also pose a risk to biodiversity, sustainability and indigenous rights.

The extent to which new Chinese EV investment will translate to economic upgrading or some semblance of reindustrialisation across the region depends largely on local investment and host country industrial policy. Ensuring value-added investment and technology transfers will be critical to achieving these objectives. For every factory built by China, there are others that have been announced but are unlikely to materialise. For instance, little has happened since Chery’s 2022 announcement to build a US$400 million battery factory in Argentina.

China’s EV market in Latin American is ballooning, built on incremental progress over the past few years. US tariffs on Chinese cars will prompt even more activity in the region — even as the United States tries to dissuade Mexico from offering investment incentives to Chinese auto and parts manufacturers. The region could become a critical market for Chinese EVs and other high-tech exports that face growing hurdles in the United States and EU.

Margaret Myers is director of the Asia and Latin America Program at the Inter-American Dialogue.

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