Chinese electric-vehicle giant BYD is thinking about building a car assembly plant in Mexico. That’s one way to crack the U.S. market. 

The possibility of a BYD plant in this region is a big deal and while Tesla, General Motors, and Ford Motor have time to prepare they should start getting ready right now. Wednesday, Nikkei Asia reported that BYD was considering building a car plant in Mexico. Ultimately, that would be the avenue for BYD cars to enter the North American market. BYD didn’t immediately respond to a request for comment about its expansion plans.

“The company’s spokesperson did not mention where exactly the company is looking but indicated Nuevo Leon and Bajio are likely candidates,” wrote Deutsche Bank analyst Edison Yu in a Thursday report. Nuevo Leon is the same region where Tesla is building a new car plant. “After leading as one of the top EV share takers in China, BYD is expanding overseas and last year delivered 243,000 units across 70 countries,” he added. Exports accounted for about 8% of the 3 million-plus cars BYD sold in 2023.

None of BYD’s exports entered the U.S., though. Local production is a must for a Chinese auto maker because the U.S. tariff on Chinese car imports is 25%. That makes exporting from China a nonstarter. If BYD cut prices to offset the tariff in the U.S., the implied loss per car—based on recent financial performance—would be in the range of $4,000 to $5,000—excluding any cost of shipping.

So, if production is a must, how long does Tesla and the rest of its U.S. peers have to prepare? A plant takes a year or two to build. BYD would also need to organize distribution in the U.S.

Toyota Motor offers some context on how a new entrant can gain a foothold in the U.S. Toyota started selling cars in the U.S. in 1958 and sold 258 vehicles that year. By 1963 Toyota had 125 dealerships. Dealerships selling imports weren’t a significant threat to the domestic industry. Toyota’s U.S. market share entering the 1970s was about 1%, according to automotive data provider Wards. Toyota made its first manufacturing investments in the U.S. in 1972 and 1974. Toyota and GM formed a joint venture in 1984 that would become the Fremont, Calif., plant eventually sold to Tesla.

Toyota picked up about 6 percentage points of market share through the manufacturing expansions of the 1970s and 1980s. Today Toyota has 13 plants in North America including eight vehicle assembly operations. In 2023, Toytoa sold 2.2 million cars in North America and owned about 14% of the U.S. market. After Toyota established U.S. manufacturing capacity, it took about 20 years for the company’s market-share gains started to significantly affect the results of domestic auto makers.

Things seem to happen faster these days, so U.S. auto makers have, perhaps, a decade to get ready. Preparing is a good question. BYD makes low-cost battery EVs and plug-in hybrid vehicles profitably. They make their own batteries, which helps keep costs down. All the U.S. auto makers have or are building battery capacity, which should nullify that advantage. Labor rates in Mexico are lower than in the U.S., but all U.S. manufacturers have or will have Mexican capacity.

Given all that, competitive success will boil down to product. Domestic auto makers need lower-priced, attractive, electric vehicles. The 2024 Chevy Equinox EV starts at $35,000. That car will be available in mid-2024. Ford is working on what it calls gen-two EVs now. Gen-two comes after gen-one which includes the Mustang Mach-E and F-150 Lightning. Those vehicles are essentially modified gasoline-powered platforms and aren’t optimized for electric technology.

One of Ford’s gen-two vehicles will be a smaller, lower-priced EV. And Tesla is working on its next vehicle platform which will be the basis of a battery electric vehicle that might start below $30,000. That vehicle might be on the roads in 2025.

The Sooner The Better!