Auto Industry Experts Met at MBS 2023 to Share Concerns, Hopes

The inaugural Mexico Business Summit 2023, held on Nov. 28 30 at Expo Santa Fe in Mexico City, brought together influential leaders from the automotive sector, who  discussed the present dynamics and challenges of the industry. Concerns include matters related to the electric vehicle (EV) market and considerations regarding the influx of Chinese players into the country.

Amid the discussions, strengthening Mexico’s automotive industry remains a vital priority, explained José Zozaya, Executive President, AMIA. "Failing to position ourselves as a leading country in the manufacturing and export of EVs could result in the loss of jobs and foreign direct investment," he said. This urgent sentiment was shared across companies, associations, and chambers associated with the automotive sector, underscoring the critical juncture faced by the industry.

The summit delved into the evolving strategies shaping the automotive landscape, with a specific focus on environmental, social, and governance (ESG) principles. Leaders like Nazareth Black, CEO, Zacua, highlighted the holistic nature of ESG approaches. For Black, ESG is not just an environmental concern but a comprehensive framework incorporating social inclusion, governance transparency, and economic sustainability. She defined ESG as "seeing the world through commercial activity without sacrificing productivity." 

During the panel ”Private Sector Priorities in Driving Forward Automotive Industry Sustainability,” a fundamental question emerged: What role does pollution play in the industry’s conscience? The implementation of ESG practices, imperative for future performance, faces financial hurdles, said Gerson Vaca Avendaño, ESG Partner, Basham. Avendaño stressed that while costly, the integration of ESG principles is expected to become mandatory, emphasizing that it is no longer a voluntary aspect but a non-negotiable requirement.

The industry, accounting for a significant portion of energy consumption and greenhouse gas emissions, faces substantial hurdles. These challenges are driving a collective push toward adopting sustainable practices, considering reductions in emissions, renewable energy integration, and compliance with environmental regulations.

The upward trajectory of EV sales in Mexico sparked optimism. However, this promising trend is not without its challenges. Despite the increasing demand for EVs, the stagnation in the number of charging stations poses a significant obstacle, potentially hindering the sustainable growth of the EV market in Mexico.

Zozaya's call for a swift investment in infrastructure resonated profoundly within the discussions, highlighting Mexico's lag in EV-specific infrastructure development. Addressing this gap emerged as a critical need for ensuring the industry's continued growth and competitiveness in the global market.

Despite recognizing EVs’ environmental benefits, the lack of incentives hampers their widespread embrace, stalling the transition toward sustainable operations, said Gerardo Gómez, Director Country Manager Mexico , from J.D. Power.

Beyond sustainability concerns, discussions at the summit highlighted the pivotal role of technological advances in reshaping automotive manufacturing. AI, Robotics, IoT, and machine learning are emerging as transformative elements, driving efficiency, precision, and adaptability within the sector.

Manuel Centeno, VP of Sales for North Latin America, Africa, the Middle East, and Europe, Yalo, emphasized the transformative potential of AI and messaging platforms, indicating a significant shift in consumer preferences toward these channels. This shift presents a strategic opportunity for companies to enhance customer engagement and conversion rates. He highlighted the need to transform how smaller enterprises leverage technology to thrive in an increasingly digitized market.

Esperanza Ortega, President, CANACINTRA, champions Mexico's leap into Industry 4.0, emphasizing talent development and tech utilization to fortify 'Made in Mexico' branding and global competitiveness. She added that additive manufacturing and innovative materials are revolutionizing the sector. 

Automotive industry leaders called for a proactive transformation, stressing resilient systems and robust data protection as crucial for sustained agility and competitiveness in an evolving automotive realm.

The industry's future trajectory demands a delicate balance between technological innovation, sustainable practices, and strategic foresight. Embracing EVs, integrating ESG principles, and harnessing technological advances represent pivotal steps toward sustainable growth. Overcoming challenges, such as infrastructure development and regulatory compliance, will define the industry's success in navigating an era of rapid transformation.

Other challenges include attracting and retaining talent. In the quest to attract skilled individuals, concerns include the need to find compelling candidates, especially for smaller and not-so-well-known companies. Thuse, companies should focus on providing exciting career paths and cultivating effective leadership capable of strategic thinking in uncertain environments.

Eduardo Asaf, Partner, McKinsey & Company, emphasized the importance of resilience, agility, team empowerment, adaptability to change, talent, and culture as critical areas that companies must address to remain competitive in an ever-evolving business environment.

Mexico’s Electromobility Transition

The transition to electromobility spells growth for Mexico's automotive industry, as it is expected to generate a total of 903,000 jobs and a production value of US$112 billion by 2023. This will require specific technological skills as identified by INA, including embedded software, cybersecurity, and artificial intelligence.

"The entire industry is now focused on electromobility. The demand for engineers is enormous. There is a shortage of 20,000 engineers and, currently, in Mexico, we have around 8,000. The talent shortage is active, so we need to develop our people," Alberto de Icaza, Director of Government Relations Chambers and Association, ZF Group.

While electromobility’s role in the green transition is clear, the development, production and commercialization of EVs must have an overarching impact on economic and social development, said Federico Rojas, Minister of Labor of Nuevo Leon.

Rojas said that Nuevo Leon has emerged as the epicenter of electromobility in Mexico, hosting more than 140 foreign direct investment (FDI) projects, equivalent to US$7.2 billion. This strategic positioning not only places the region as a leader in electromobility, but also promotes a significant impact on local employment and the economy.

The move toward electromobility requires more than just a shift in the automotive industry. It embodies a complete transformation touching upon technology, human capital, and environmental responsibility. While the market appears to be gradually accepting EVs, much remains to be done in terms of infrastructure development and industry transformation, says Edgar Moreno, Consulting leader and Chief Communications Officer, CeNeutral, and Policy Director, AMIVE.

The world has already chosen EVs as the way forward, creating a sense of urgency in the adoption of these technologies, said Lorenzo Ortego, CEO, Voltway.

EVs are making substantial strides, representing nearly 18% of the low-emission vehicles sold in Mexico in 2023. Of those, plug-in hybrids accounted for 8.3% of sales, while conventional hybrids dominated at 73.7%. This transformation is significantly propelled by public companies transitioning to electric, amplifying Mexico's push toward electrification. 

"We still lack sufficient incentives in Mexico. However, if we continue producing solely combustion cars, we run the risk of going out of business,” said Francisco Cabeza, President at AMIVE.

Nearshoring and the Realignment of Supply Chains

As the United States progressively pivots its trade reliance from China to Mexico, a compelling scenario unfolds. Despite escalating labor expenses in Mexico, the country maintains a cost advantage in production compared to the United States. This trend is notably conspicuous in the automotive sector. While substantial growth is expected in Asia, Mexico is expected to closely follow  in the upcoming five to 10 years

Héctor Soto, Senior SCM and Operations International Consultant, Seraph Consulting, outlined critical challenges encountered in production transfer and the burgeoning nearshoring landscape in Mexico. These challenges encompass shortages of skilled labor, leadership dilemmas amid rapid growth, and cultural and procedural hurdles.

To tackle these hurdles, Soto advocates for leadership challenges and the implementation of decision-making tools, data analytics, and standardized work protocols.

Mexico holds a privileged geographical position with companies increasingly focusing on offshoring and nearshoring. Saulo Guzmán, Managing Director, Wieland Metal Services Mexico, emphasized the importance of diversifying supply sources and not relying entirely on a single strategy, as this could be counterproductive in certain scenarios. Despite the evident benefits of nearshoring, panelists stressed the need for meticulous planning to manage inherent risks and ensure effective preparedness for the arrival of companies in Mexico.

The economic landscape across North America is significantly shaped by intricate trade agreements and geopolitical moves. From USMCA’s impact on regional integration to escalating trade controls in China and labor agreements in the automotive sector, a series of pivotal developments steer the economic course.

In 2020, the transformation from NAFTA to USMCA reshaped the dynamics of Mexico's automotive sector, said Fausto López, Customs and Free Trade Agreements Manager, Volkswagen. This transition, which began in July 2020, particularly impacted the automotive industry. It provided easier access to markets with preferential tariffs but simultaneously demanded a skilled workforce to meet stringent requirements, notably the certification of product origin.

However, nearshoring has also opened the door to many Chinese investment ventures, which are coming to Mexico looking to expand their market and better target the US market.

Companies are not content with staying within Chinese borders. Carolina Núñez, Director General, Mexico-China Chamber of Commerce and Technology, underscored that Chinese players seek long-term investments in Mexico, planning to absorb Mexican knowledge and contribute to the development of new jobs and R&D centers. Additionally, Chinese companies consider it especially important to build strategic alliances with the Mexican government to create favorable environments for the arrival of new companies.

The Mexico Business Summit 2023 served as a catalyst for meaningful discussions and collaborations, paving the way for a more sustainable, technologically advanced, and competitive automotive industry in Mexico.