Toyota’s shift to U.S. stokes fears for Mexican car industry

A Toyota Tacoma concept pickup truck at the 2024 New York International Auto Show. (Gabby Jones/Bloomberg)

Mexico’s auto industry is bracing for a blow that could spread well beyond Toyota Motor Corp., after the Japanese automaker said it would move production of its popular Tacoma truck out of the country and into Texas.

Growing uncertainty over future U.S.-Mexico trade ties is stoking concern that more Mexican auto production could lose out to U.S. factories, after Donald Trump last week opted against a long-term renewal of the USMCA trade pact and instead pushed for annual negotiations.

The doubts are prompting more automakers with operations in Mexico to review backup production plans, trim output and reassess long-term deals tied to plant expansions, according to two people in the sector who asked not to be identified discussing private deliberations.

Both said they fear more announcements like Toyota’s in the coming months, as hopes fade for lower U.S. tariffs on Mexican-made vehicles anytime soon.

“It’s no coincidence that this announcement comes shortly after the U.S. opted for annual reviews,” said Gabriela Siller, director of economic analysis at Banco Base. “If this happened to Toyota, others could decide to leave Mexico in a domino effect to avoid losing competitiveness.”

Toyota’s decision to move part of its production to the U.S. could foreshadow a regional reset, as the prospect of shifting tariffs and rules of origin for the myriad parts that go into vehicles further erodes the predictability that has underpinned the sector for years.

Mexico’s already battered economy has a lot to lose. Carmaking is the crown jewel of its export-focused manufacturing base, accounting for 4.5% of the country’s gross domestic product. 

Siller said Toyota’s announcement sends a particularly negative signal since its models already contain among the highest average share of U.S.-made parts. She noted that Mexican exports from BMW AG, Volkswagen AG’s premium brand Audi and Nissan Motor Co. have declined the most this year, among others that have also seen shipments slide. 

Since last year, several automakers have studied whether to move some Mexican output across the border or recast their supplier base to include more U.S.-made components, one of the people said. Those conversations have accelerated after Trump declined to authorize a 16-year USMCA extension.

The auto industry is well-known for long-term planning that takes into account multiple objectives, Toyota’s North American headquarters said in a statement to Bloomberg.

(Bloomberg Television via YouTube)

“While we are impacted by evolving trade policies, our investments are multi-decade decisions based on broader strategic goals, our commitment to build where we sell and exceeding customer expectations,” the company said.

Since his first term, Trump has sought to lure more factories to the U.S. while downplaying the advantages of a regionally integrated auto industry. On July 7, he boasted that his tariffs were behind Toyota’s Tacoma decision. 

Trump’s victory lap reinforced expectations that more Mexican auto plants will either have to move some production to the U.S. or prepare for higher costs from his tariffs.

Toyota’s latest decision is far from the only Mexico-to-U.S. shift.

General Motors Co. had already announced new U.S. capacity for its Chevrolet Blazer and Equinox SUV models, both currently made in Mexico, while Hyundai Motor Co. has similarly shifted some of its Tucson SUV production while also creating a tariff task force to boost U.S. sourcing.

Nissan halted exports of its Versa compact sedan from Mexico to the U.S. late last year. it also discontinued two other Mexican-made models — the Infiniti QX50 and the QX55 — which were largely earmarked for the U.S. market.

Vehicles made in Mexico and imported by the U.S. can sidestep some of Trump’s 25% auto tariff if they’re USMCA-compliant, depending on how much U.S.-made content they contain. But much of the import taxes still apply. According to a document seen by Bloomberg, the average tariff comes in at almost 19%, higher than the 15% duty slapped on some vehicles imported from South Korea or Japan. 

Some analysts point out that Mexico’s overall vehicle exports continue to rise.

“I don’t think auto manufacturers are considering leaving the country,” said Julio Ruiz, chief economist at Citi Mexico. “Instead they’re simply adjusting certain production lines, certain cars that can be manufactured elsewhere, to try to minimize the tariffs they face.”