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News Article

The Electromobility Transition: A Path Towards Global Leadership

By Cinthya Alaniz Salazar | Thu, 09/29/2022 - 17:52

Mexico’s automotive sector is undergoing a consequential transformation impelled by technological innovation and a global push towards electromobility. This inflection, combined with the expediency of the USMCA, could help the country to reach a top position in the automotive supply chain. 

“Mexico is well positioned to become a global leader in the exportation of auto parts by displacing China and other global competitors,” said Alberto Bustamante, Director General, National Autoparts Industry (INA)

By the end of 2022, Mexico will have exported an estimated US$79.5 billion in auto parts to the US and Canada. This contrasts with Mexico’s US$34.8 billion in auto part imports. In other words, the USMCA has resoundingly favored Mexico’s automotive industry, which still has room to grow and overtake other markets including China, the second largest provider of parts to the US. This is in direct response to the revision of the rules of origin, which disqualified many Chinese competitors and prompted a wave of investment to Mexico as automotive companies try to establish a legal presence in the Latin American country. 

Mexico has a unique opportunity to capture key market segments including core parts, principal parts and complementary parts for heavy and light vehicles. This will require domestic actors to ramp up the production of these key components in a relatively tight window, a gargantuan task that is contingent on the access to raw materials and finished goods like semiconductor chips. Nevertheless, it is fundamental to the Mexican market to replace the goods that are now imported from markets in Asia and the EU. This replacement could bring Mexico an estimated US$97 million, according to data provided by INA.

Another important opportunity for Mexico is represented by the legislative approval of the Inflation Reduction Act, said Bustamante. This revised version of the Build Back Better Bill outlines incentives aimed at promoting investment in clean energy projects. These incentives include federal credits aimed at encouraging consumers to purchase electric vehicles made in North America, so long as their price is under US$80,000 for vans and SUVs and below US$50,000 for other vehicles. Consequently, “the increase in electric vehicle exports to the US will grow the supplier chain, thus growing the auto part industry,” said Bustamante.   

However, the clarity of this opportunity is clouded by the US government’s unwillingness to recognize the rules of origin as outlined in the USMCA, said Bustamante. This disagreement prompted the Mexican and Canadian governments to motion for the establishment of a dispute settlement panel, which will discuss the US interpretation of the rules governing the regional value content calculations that must be performed for a vehicle to qualify for USMCA duty-free treatment, as reported by MBN. The final ruling of the panel will be announced by the end of 2022.

Cinthya Alaniz Salazar Cinthya Alaniz Salazar Journalist & Industry Analyst