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Mexico Needs RoadMap to Reach the Auto Sector of the Future

By Alejandro Enríquez | Wed, 09/22/2021 - 15:56

The automotive sector is still recovering from the pandemic despite the looming challenge presented by shortages across the supply chain. While the sector endures, it needs support from all industry players to properly overcome these obstacles.

The automotive sector represents only a small part of the total semiconductor market but unexpected demand has led to shortages across manufacturing industries. Only 10 percent of total semiconductor chips head to the automotive industry, being the Americas the last region in semiconductor demand, according to INA. “Semiconductors for the automotive sector are manufactured in five factories, mainly in Asia. The demand for semiconductors from other devices has risen causing a consequential lack of supplies for the automotive sector,” said Alberto Bustamante, Director of INA.

Logistics costs have also driven up a shortage of different supplies. “Price of containers has risen up to 100 percent per container. For instance, from Shanghai to Long Beach the regular cost ranged between US$2,000 and US$3,000; now it costs about US$8,000. This has delayed production globally,” said Bustamante.  

Manuel Montoya, President of the Automotive Cluster Network, said that even though there are projects to bring semiconductor manufacturing operations to North America, these may take time. “Semiconductor factories are already building new plants but it is not a simple as that; it takes between 18 and 24 months to ramp up operations,” said Montoya. OEMs production halts or shifts to models that rely less on certain semiconductors have impacted the entire supply chain, added Montoya. Under these circumstances, recovery of production lines will not arrive until 2H22, said Oswaldo Belmont, Technical Director of AMIA.

While the sector is dealing with semiconductor shortages, it is also undergoing one of its deepest transformations as OEMs shift to CASE mobility. CASE mobility transformation requires a unique strategy for every stage, explained Belmont, so there is no one-size-fits-all solution. “EV production is conditioned by battery production otherwise there may be more vehicles in global markets. As for connectivity, vehicles will be connected to the infrastructure, save lives and reduce accidents but for vehicle autonomy we need a solid infrastructure. Shared mobility also drives the sector to a different paradigm in terms of vehicle ownership and new business models, in which users can access a vehicle only temporarily.”

Another problem to advance electrification is poor battery life and high costs, said Montoya. “If the battery technology is not sufficiently advanced and has a similar cost to an ICE vehicle, EV will remain a niche market.” However, these challenges have not stopped electrification as EV sales are experiencing solid growth rates in Mexico, in some cases growing by over 100 percent, said Bustamante. But for EVs to truly penetrate the market there must be support from the government. “Companies should not be driving infrastructure on their own; they need to be sported by government policies and a proactive regulation. The sector needs charging corridors, such as the one in the Bajio, built with the support of the federal government,” said Bustamante.

There still a need for regulation cohesive to assure competitiveness, said Bustamante. “We are fifth largest auto part producer in the world with US$94 billion in play. This drives the country to build regulations that assure its competitiveness. The automotive sector in Mexico is larger than the oil and gas and remittances sectors, even larger than tourism. Millions of families rely on the automotive sector.” A cohesive public policy will serve as a roadmap for the sector to embark in the challenges brought by its transformation while coping with existing challenges, said Bustamante. “From the government side we need to create coherent public policy to draft roadmaps for the sector. In terms of regulations. It should seek for a balance between cost and benefits. We need to acknowledge what other countries do in terms of certifications and homologations and define which are the most important elements of the sector to regulate.”

Collaboration is not restricted to governments and businesses; academia also plays a key role.  “Triple helix collaboration is essential to just not be a technology importer. Companies in Mexico should work together with local universities in product development. It is also important for universities to approach to companies. Guanajuato, for instance, is inaugurating an Industry 4.0 hub hand in hand with the automotive cluster, which can be effective to implement such projects at real manufacturing plants,” said Montoya.

The triple helix approach has helped the auto sector in Mexico succeed. “Success stories in the automotive sector are based on the triple helix, with human capital answering to the needs of the sector, while companies providing them with job opportunities with the support of local governments for new plants arriving to the state. Also, there should be more communication within the academia for a larger interaction,” said Belmont.

Solid collaboration has allowed the sector to develop suppliers and engineering centers in Mexico. “The two largest trends locally are the USMCA and the arrival of engineering centers. These centers are arriving to Mexico because the country has engineers. Engineering centers are bringing more added value,” said Montoya.

Photo by:   MBP
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst