Decarbonizing the Automotive Supply Chain

You can watch the video of this panel here.

Over the past three years, most major automakers have announced detailed plans to reduce greenhouse emissions, not only in their own production plants and vehicles but across the entire value chain. For this to be possible, not only do companies and the private sector need to invest in new technologies. They also need incentives and public policies focused on supporting this transformation, agreed panelists at the Mexico Automotive Summit on Wednesday, Mar. 24.

“The energy sector is currently bustling in Mexico and there are great opportunities for power generation companies. There are also opportunities for industrial companies to take advantage of the very economical power generation opportunities, both conventional and renewable, that the country has to offer,” said Hans Kohlsdorf, Founding Partner at E2M. "Sometimes certain news stories overshadow these issues but there is an excellent offering in this industry.” Renewable energy prices, Kohlsdorf added, have fallen worldwide and Mexico is no exception. “The country's abundance of electricity is supported by the availability of natural gas. Today, in all industrial areas of the country, we are importing very cheap natural gas from Texas. We are also seeing small wind installations of one or three towers for industrial use.” 

Regarding incentives, according to Kohlsdorf, the country is in a favorable position. “Companies that invest in renewable energy generation have a tax incentive that allows them to deduct 30 percent of their investment from taxes in their first year.” There is also complementary income for generators in the form of clean energy certificates. 

According to Sussane Lehmann, Senior Director of Production at Volkswagen North America, without incentives, there would be no initiative for change. At Volkswagen, she said, achieving sustainability goals is a priority for the company, nonetheless. "At our Puebla plant in Mexico, we have a plan that will allow us to use only renewable sources of electricity in the medium term,” she said. A challenge, however, is to support the entire supply chain to meet the same goals. “We are still experimenting and finding out how the CO2 emissions we emit are distributed over the entire lifecycle of a car. While some processes contribute with 13 percent of emissions, others only contribute 2 percent, for example. We are working with the entire supply chain, right down to logistic partners, to ensure that everyone meets their target. It has to be handled in a holistic way,” Lehmann said. 

According to Manuel Guevara, General Manager at Brose, 28 percent of all CO2 emissions come from vehicles, 27 percent from electricity generators and 22 percent from the manufacturing industry. The residential/commercial sector accounts for 12 percent and agriculture for 10 percent of emissions. “If we, as companies, contribute to emissions in the areas of transport (automotive sector) and industry, we have a great responsibility toward ensuring sustainability,” he said. In recent years, Brose, a Tier 1 that currently works with companies such as Tesla, has focused on acquiring and developing smart technologies to achieve its sustainability goals. “We are focusing on automatic switches, lighting sensors and smarter power sources for our machines and production processes to save energy," said Guevara. 

For Diego Blumenkron, Sales Director at electric power generation company Northland Power Energía, there are standards that force companies to meet sustainability targets. However, "as energy companies, we cannot ignore national constraints,” he said. “The way we can help today is to take advantage of the boom that OEMs have generated to create more appetite for clean energy in the supply chain. Beyond that, we have to try to offer energy as cheaply as possible.”

According to Manuel Guevara, incentives in the country are not yet attractive enough to make the necessary changes toward clean energy use. "Brose is a company with 55 plants worldwide and we can appreciate the differences between each country,” he said. Guevera added that even though it is not mandatory in Mexico, the company already has the ISO 14001 certification and is in the process of achieving ISO 50001. "By 2025, we want Brose’s entire supply chain (including Tier 2s and 3s) to use clean energy," he said.

Kohlsdorf added that there is still a need for more information about the opportunities that the market offers today so companies and large consumers can take more advantage of the business potential that Mexico has to offer.