Tesla’s Chinese suppliers rush to set up EV component plants in Mexico to support new ‘Gigafactory 6’

“It is a win-win scenario,” said Peter Chen, an engineer with car-parts maker ZF TRW in Shanghai. “Tesla needs Chinese suppliers to support its running of the Mexican Gigafactory, while Chinese car-part makers have been looking to tap overseas markets due to overcapacity worries at home.”

Ningbo Xusheng Group, which makes aluminium alloy parts, Zhejiang Sanhua Intelligent Controls, a manufacturer of heat control components, and Tuopu Group, which deals with chassis production, are among the Tesla partners that will make a foray into Mexico.

Xusheng said in late March that it would spend US$276 million to build a production line in the country bordering the US.

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Sanhua announced in June that its plant in Mexico, with an annual capacity of 8 million heat control systems, would cost 1.05 billion yuan (US$146.2 million).

Tuopu has set aside US$200 million to build a factory in Mexico.

Tesla said its factory in Mexico will have a capacity of 1 million units a year and is expected to be operational in the second half of 2024.

Tesla’s Shanghai Gigafactory, its first beachhead outside the US, began delivering vehicles to customers at the end of 2019 and has become the electric car giant’s largest production hub worldwide buoyed by a complete and efficient automotive supply chain in China.

The factory, located in Shanghai’s Lingang free-trade zone, churned out 710,000 vehicles last year, more than half of the company’s total output of 1.31 million units.

Tesla is the mainland’s runaway leader in the premium EV segment.

“Tesla’s success story in China benefits not only the US carmaker, but also its Chinese vendors,” said Chen Jinzhu, chief executive of consultancy firm Shanghai Mingliang Auto Service.

“China’s prowess in EV will result in more outbound moves by supply-chain firms in the coming five years.”

Chinese vendors already supply almost half of the world’s vehicle parts. They sold US$710 billion out of the US$1.51 trillion worldwide total in 2021, according to a report in February by Beijing-based Insight and Info Consulting.

China dominates the global EV supply chain. More than 60 per cent of batteries powering electric cars worldwide are produced by Chinese companies, with Contemporary Amperex Technology Limited (CATL) and BYD taking the top two spots in terms of annual production.

Electric car sales in the mainland will rise by 35 per cent this year to 8.8 million units, UBS analyst Paul Gong predicted in April.

South China Morning Post