Energy Reform Threatens Auto Industry

President Andrés Manuel López Obrador’s energy reform will impact every Mexican industry, and the automotive sector is no exception.

The proposed reform, which aims to modify Constitutional articles 25, 27 and 28 of the Magna Carta, has been criticized for raising carbon emissions by up to 65 percent at a time when the automotive industry focuses on moving towards environmentally friendly cars. The automotive industry may not seem like the player most directly affected by the reform but it could experience some of its biggest impacts.

Initially, the proposed reform would take away Mexican companies’ ability to generate power for their own use and for sale to third parties. Many industries, such as the automotive sector, who depend on the self-generation of power would instead have to get energy from the state-owned Federal Commission of Electricity (CFE). However, energy lawyer Jorge Arrambide from Santos Elizondo believes CFE does not have the capability to supply the energy needs the reform would create.

Furthermore, taking away self-supply power from the auto industry would only hit the industry with more costs as it is estimated to drive up electricity costs in the country by 54 percent. The automotive industry is currently trying to manage pressing issues such as the pandemic-induced decrease in sales due to lessened mobility and the global microchip shortage.

Industry executives who asked to remain anonymous fearing a commercial repercussion told El Universal that the fate of the reform will determine the future of the Mexican automotive industry. One industry expert pointed to the lack of renewable energy sources in the proposal and in the next four years of CFE projects, an absence that is sure to impact investment for automotive companies as the industry globally is looking to neutralize CO2 emissions during production. If Mexico cannot guarantee cleaner carbon emissions, foreign auto plants are less likely to choose Mexico for production.

Mexico’s position as one of the most important auto-part producers in the world could be jeopardized. Furthermore, an industry expert warned that a protectionist stature over lithium could delay the end-goal to develop electric batteries with commercial ends because of 90 percent of lithium is mined in China.

As such, the auto industry is far from the only sector that would be deeply affected by the passing of the reform. The switch to CFE generated energy would impact Mexican industries more than a similar reform would other countries because of Mexico’s high industrial power costs, 50 percent higher than equivalent US values. Industry impacts aside, the reform would threaten to increase Mexico’s CO2 emission levels above the Paris Agreement approved levels. To pass, the reform will need two-thirds congressional majority.