The Long Road to USMCAWed, 01/22/2020 - 09:24
Q: How has Mexico advanced toward the production of future vehicles and their components?
MN: The Mexican automotive industry has started to react to the electrification trend but there has not been a major change in focus toward these products. An OEM has announced plans to start assembling an EV model at volume scale in the country and some suppliers based in Mexico are preparing for the shift. Local production of EVs will boost a change in perspective toward new technologies and will entice suppliers to start working on new components and systems. At Deloitte, we are constantly raising awareness about the concepts of smart mobility and smart cities so our client companies know where to direct their development strategies related to e-mobility.
AT: While changes related to electrification are still incipient, there have been several efforts by consumer-products companies based in Mexico that invest in electrifying their delivery trucks. Because these players have large-sized fleets, they care about increasing the efficiency and sustainability of their operations through vehicle electrification. Among its clients, Deloitte is also promoting mobility, sustainability and even development initiatives focused on supporting e-mobility strategies in various regions of the country.
Q: How do you expect USMCA to impact Mexico’s attractiveness for automotive FDI?
MN: The arrival of FDI to Mexico has been extremely inconsistent since 1Q18 as a consequence of investment uncertainty. This has taken a toll on the Mexican automotive industry. Companies were waiting for some gaps regarding USMCA to be filled. USMCA’s enforcement will help curb uncertainty but Mexico needs to continue its efforts to attract FDI. It is important to offer incentives so Mexico can remain an attractive destination. Additionally, issues related to rule of law and crime are some of the most common worries among potential investors and ratings agencies.
AT: There are many opportunities for Chinese and other Asian companies to enter Mexico, which is good news for the sector. The trade war between the US and China has enticed Chinese companies to diversify the places where they locate their capital. Mexico needs to continue investing in the development of its domestic market and its skilled talent.
Q: How can Mexico adapt to this changing trade environment?
MN: Around 82 percent of Mexico’s vehicle production is exported. While USMCA will bring several challenges for the sector, Mexico has the advantage of an extensive FTA network that enables automotive companies to market Mexico-made vehicles in many countries. Mexico needs to develop a diversification strategy for its vehicle exports in the medium to long term. However, to achieve that the country must start building the cars that those markets demand. Mexico’s automotive industry builds the cars that US buyers want and only a few OEMs have invested in producing the cars that other markets demand to make Mexico an assembly hub for the global market.
AT: OEMs are starting to assemble global models in Mexico. These companies see in their Mexico-based plants the possibility to expand their operations to cater to more markets by producing newer vehicles and engines. OEMs’ newest plants are designed to be extremely flexible so they can easily change the models that are produced there, which also offers the opportunity to build more hybrids and EVs locally.
Q: What are the main areas of opportunity for collaboration between the public and private sectors to promote FDI attraction?
AT: The establishment of R&D centers offers many opportunities for collaboration. There are many companies interested in partnerships with academic institutions and the government to develop technical centers and labs, to create connectivity solutions, to optimize value chains and to take advantage of Industry 4.0 technologies. The success of these collaboration strategies will depend directly on the Mexican government’s commitment to offer platforms and infrastructure that underpin the effectiveness of these collaboration schemes.
MN: There are some isolated efforts by state administrations to spur collaboration in their regions but we have not seen an integral, Mexico-wide strategy. Regional automotive clusters have been instrumental in the adoption of best practices for collaboration between private companies and public dependencies.
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