Mexico's Auto FDI Hits US$6.9 Billion in 2024, Tariffs Persist

In 2024, Mexico’s automotive assembly sector reached a historic milestone in Foreign Direct Investment (FDI), recording US$6.9 billion. This record-breaking achievement coincided with the second administration of US President Donald Trump, who has introduced a series of tariffs and is considering additional duties on the automotive sector.

Trump implemented a 25% tariff on Mexico and Canada, citing insufficient efforts to address drug trafficking and migration issues. However, this tariff was later confined to imports that do not comply with the USMCA. Additionally, his administration imposed a 20% tariff on all Chinese imports in two phases and a 25% tariff on steel and aluminum from Mexico, Canada, and other nations. Other tariff proposals include a 25% duty on copper and its derivatives, reciprocal tariffs, and potential levies on industries such as automotive, pharmaceuticals, and semiconductors. During his campaign, Trump also proposed a 20% tariff on all imported goods.

Despite these challenges, Mexico remains an attractive destination for automotive investment. German consultancy Roland Berger attributes this to the country’s low labor and logistics costs, robust supplier base, and increasingly resilient supply chains. In recent years, the automotive and related industries in Mexico have consistently attracted US FDI, often at the expense of China.

In 2023, Mexico’s previous record for FDI in vehicle manufacturing was US$5 billion. The consistent growth in investment underscores the country’s emergence as a major supplier of light vehicles and auto parts to the United States, outpacing competitors like Canada and China.

Recent investment announcements highlight a shift toward expansion and electrification. General Motors has invested US$1 billion to convert its Ramos Arizpe plant for electric vehicle (EV) production. BMW committed US$872 million to EV manufacturing at its San Luis Potosi facility, while Volkswagen allocated US$764 million over three years to upgrade its Puebla factory. ZF Group also invested US$245 million to expand its operations in Queretaro.

Historically, original equipment manufacturers (OEMs) have established production facilities in markets where their vehicles are primarily sold, driving further production commitments in Mexico. Despite uncertainties surrounding tariffs, Roland Berger notes that Mexico has maintained its role as a key player in automotive manufacturing, benefiting from its integration into global supply chains.

However, concerns remain. Stellantis has warned that trade restrictions could lead to higher production costs, increased consumer prices, reduced demand, and lower profitability for automakers. Additionally, supply chain disruptions may affect the availability of critical components and raw materials.

Even so, auto parts manufacturer Autoliv remains optimistic, forecasting medium- and long-term growth in the global light vehicle market, driven by pent-up consumer demand and rising per capita GDP.

On a broader scale, Mexico attracted US$36.872 billion in total FDI in 2024, a 2.3% increase from preliminary 2023 figures, according to Mexico’s Central Bank (Banxico). Of this total, 54% went to the manufacturing sector, with notable investments in transportation equipment, beverages and tobacco, chemicals, computing equipment, food production, metals, and plastics and rubber.

Mexico’s automotive exports grew at an annual rate of 2.7% in 2024, reaching US$193.907 billion. While this marks a slowdown from the double-digit growth of the previous three years, automotive exports still accounted for 31.4% of Mexico’s total product exports.