Augusto Galván has worked with carmakers in Mexico for over 20 years. He runs a factory in central Mexico that builds custom air-conditioning systems for manufacturers in the region’s automaking industry, including Toyota and Volkswagen. During his time in the industry, his factory’s managers usually leased cars for company travel from carmakers Galvan has provided air conditioners to. But this year, the managers have gone with Chinese brands, like Chirey and MG, for the first time. “It surprised me that they would choose them, but it turns out they were the only ones immediately available at the dealerships,” Galván told Rest of World.
During the first six months of 2022, Chinese carmakers like MG, Chirey, and JAC Motors have increased their sales in Mexico by 200% compared to 2021, according to the Mexican Association of Automotive Dealers (AMDA). The spike is happening as non-Chinese carmakers manufacturing in Mexico — like BMW, Volkswagen, and General Motors — are struggling to get their hands on semiconductors to keep producing vehicles, both for export and the local market. Talking to car dealership managers, customers, and employees from the auto industry, Rest of World found that Chinese carmakers are seizing the opportunity provided by the semiconductor crisis to start selling to a consumer base that has long been buying cars from elsewhere.
“Mexico is one of the largest car producers in the world,” André Oliveira, business consulting partner for Sintec, a consulting firm specializing in the automotive, IT, and manufacturing businesses, told Rest of World. “However, it doesn’t have chip factories and depends on imports, mainly from Asian countries.” AMDA added that installing a semiconductor factory in Mexico takes at least three years.
The global semiconductor supply shortage stalled much of the production in the Mexican auto industry in 2020, when it had a yearly 20% slump in production and exports. It’s now on the path to recovering to 2019 levels, but the global chip shortage hasn’t normalized yet. Vehicle production was down 13% in 2022’s first quarter, compared to the same period in 2021, according to the National Auto Parts Industry. Data from JD Power Mexico, a consumer research firm, shows that in 2021, about half a million cars weren’t produced in Mexico due to the shortage — 150,000 of which would have been sold domestically.
“We foresee this situation will keep affecting our supply until mid-2023,” a representative for General Motors in Mexico told Rest of World. “Some of the cars don’t have wireless chargers and we have to sell them like that,” Leannette Bautista, marketing manager at a BMW dealership in Puebla, in central Mexico, told Rest of World. “But customers don’t want to buy them nor do they want to wait three to six months to get the fully equipped versions.”
Meanwhile, newly arrived Chinese brands like Chirey or Changan have fully equipped cars available on demand. The fact that these cars are not produced in Mexico is why they’re available for sale in the country: “The Chinese supply chain favors companies whose production lines are fully integrated into the Chinese economy,” Galván told Rest of World. A Volkswagen employee who asked to remain anonymous because he’s not authorized to speak for the company also told Rest of World that while European and American carmakers in Mexico are struggling getting car parts from China, Chinese companies have cars and are getting them into Mexico without a problem.
Oliveira broadly agreed, noting that it was access to semiconductors specifically which gave Chinese automakers an edge. “JAC has been assembling cars in Mexico since 2017, but its larger degree of integration with JAC China could indicate the company’s broader access to chips,” he said.
According to Mexico’s National Institute of Statistics and Geography, INEGI, China’s MG sold almost 4,800 cars in October while companies like Volkswagen — which has long built cars in the country — sold 1,738. In October 2020, Volkswagen sold 3,707 units while MG sold 20.
The sudden availability of these brands in the market could be changing Mexican consumers’ perceptions about Chinese cars. “Many mass market Chinese products were previously known to be of low quality,” Oliviera said. “Broader penetration and acceptance of Chinese cars may help change the consumer’s perception.”
Yissel Juárez, a government worker from the Mexican state of Puebla, told Rest of World she usually would have been wary of buying Chinese products. “I wanted a Kia Seltos, but it had a three-month wait time,” she said. “[But] the [Chinese-made] MG ZR was available in a fortnight.” It was the first time Juárez bought Chinese tech, and she’s been converted. “I’m very happy with it.”