China car brands are encountering a very interesting situation in Mexico.

On the one hand, their market share continues to rise; on the other hand, their import volume has dropped significantly.

On July 20, Reuters quoted data from the Mexican Automobile Dealers Association as saying that in the first half of this year, the share of China brand cars in the new car market in Mexico reached 17%, with sales of 137,525 vehicles, up from 107,712 vehicles in the same period last year.

But during the same period, imports of China brand cars fell by 43%.

If you only look at one of these numbers, it is easy to draw wrong conclusions.

Some people will say that China cars have broken through Mexico's trade barriers.

Others will say that the decline in imports means that tariffs have already played a role.

Both accounts only see part of the story.

What's really noteworthy is that sales, imports, inventory and localization are becoming four different issues.

Why did the 50% tariff not immediately kill sales

In January this year, Mexico imposed tariffs of up to 50% on cars from China and other Asian countries, citing the reasons to protect local jobs and the auto industry.

According to traditional trade logic, after the increase in import tariffs, the price of foreign cars will rise and sales should be affected.

But in the first half of this year, the share of China brands in the Mexican market increased from 14% to 17%.

One of the important reasons is that some companies shipped vehicles into Mexico in advance before the tariffs were implemented.

In other words, part of this year's sales data comes from inventory that has previously entered the local area.

Therefore, an increase in sales and a decline in imports can occur simultaneously:

Early imported vehicles are being sold;

A new round of vehicle imports is suppressed by tariffs;

Consumers can still see China brand cars at dealers in the short term.

This is also why Mexico's Deputy Minister of Foreign Trade believes that looking at sales data alone may be misleading.

He pointed out that in the first five months of this year, imports of China brand cars have dropped by 43% compared with the same period last year.

This shows that tariffs may have changed the pace of supply, but have not yet been fully transmitted to terminal sales.

Why are China brands willing to stay in Mexico

If tariffs are so high, why didn't China car companies immediately withdraw?

Because Mexico remains an important automotive market and an important node in the North American supply chain.

For China auto companies, Mexico's value is not just local consumers.

It also connects the U.S., Canada and the entire North American manufacturing system.

This makes Mexico a market that China car brands must face seriously when going abroad.

China brands currently growing rapidly in Mexico include Geely, MG Motor, Changan and Chirey. BYD remains one of the largest China brands, although sales have dropped slightly.

These companies are not facing pure price competition.

They need to address several issues simultaneously:

Whether tariffs will continue to increase;

Whether the vehicle complies with local regulations;

Whether there are enough after-sales outlets;

Whether maintenance parts can be supplied in a timely manner;

Whether consumers are willing to trust a new brand for a long time.

Cars are different from ordinary consumer electronics.

After the mobile phone is sold, users may change it every two to three years.

After a car is sold, it takes more than ten years of maintenance, insurance, parts and financial services.

If China brands can only rely on price to enter the market but do not establish a local service system, sales growth is likely to be just a short-term inventory cycle.

This is not just a trade dispute between China cars and Mexico

The entry of China cars into Mexico also affects the industrial interests of the United States.

The United States and Mexico are discussing North American trade rules. The United States is worried that China companies will use Mexico as a transit point to enter the U.S. market, thus affecting the North American automobile industry.

The U.S. auto industry involves an economy of approximately US$1.2 trillion every year, so the growth of China cars in Mexico will not be regarded as just ordinary business competition.

The Mexican government needs to balance several goals:

On the one hand, it hopes to attract investment, reduce car prices, and maintain consumer choice;

On the other hand, it also has to respond to U.S. pressure to protect local jobs and avoid being seen as a springboard for China cars to enter North America.

China companies are facing a market with intertwined interests.

Consumers want lower prices and higher configurations;

Dealers want to sell more cars;

The Mexican government wants to preserve jobs and trade relations;

The United States hopes to restrict China companies from influencing North American supply chains.

This also explains why simply looking at sales will underestimate the difficulty of going to sea.

From "selling" to "staying"

In the past few years, China companies have often regarded sales volume, orders and market share as the first stage of achievement when going abroad.

These data are of course important, but they are not enough.

What really determines whether going to sea can be sustainable is whether the company can form a complete set of operating capabilities locally:

Whether there are stable inventory and transportation arrangements;

Whether there are local dealers;

Whether there is a maintenance and parts system;

Whether it has adapted to local regulations;

Is there a brand image that can be communicated for a long time?

After the tariff increase, companies will also have to decide who will bear the costs.

If companies absorb tariffs themselves, profits will be affected; if costs are passed on to consumers, sales may decline; if they rely on hoarding goods in advance, inventory risks will increase.

This is a very realistic business problem, and no solution can solve all problems at the same time.

What China companies really need to learn to go to sea

The advantages of China's manufacturing industry lie in its complete supply chain, high manufacturing efficiency, and fast product iteration.

But overseas markets are not copying the domestic sales model.

Just because a product sells well at home does not mean that it will still be directly successful overseas.

Regulations, channels, insurance, finance, after-sales and consumer habits in different countries all need to be readjusted.

Taking automobiles as an example, what China companies really need to make up for may not be manufacturing capabilities, but local operating capabilities.

Can Mexican consumers still find repair outlets five years later?

Can parts be made available in time after an accident?

Can local employees and distributors understand this product?

Can we continue to maintain services when policies change?

These things rarely appear in the title of the press conference, but they determine whether the brand can stay.

BOB's Judgment

China brands account for 17% in Mexico, indicating that China cars have entered real market competition from "tentative exports".

But the 50% tariff and the 43% drop in imports also remind us that an increase in market share does not mean that the risk of going to sea disappears.

Selling more this year may be due to the early entry of inventory.

Whether growth can continue in the future depends on localized production, after-sales network, parts supply and the results of trade negotiations.

For China companies, the first hurdle in going out to sea is to sell their products.

The second level is adapting to local rules.

The third level is to make consumers willing to continue to choose you in a few years.

To truly mature going to sea is not just to send goods abroad, but to establish a local business that can operate for a long time.

Source: Leading the way to the sea by Gao Shen's car

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