Mexico’s Automotive Industry in 2022

For Mexico’s automotive industry, 2022 brought an unpredictable number of changes, challenges and opportunities. The sector started the year with ongoing threats that had been dragging on since the beginning of the COVID-19 pandemic: supply chain disruptions, chip shortages and trade disputes in the USMCA region. Despite this, the industry has shown a slow but steady recovery, as companies work to reach pre-pandemic production levels.

Experts agree that Mexico has a unique opportunity to become an electric mobility powerhouse, thanks to the privileged geographical position the country has. Furthermore, the USMCA and nearshoring combo have maximized the country’s visibility for companies that wish to invest in Mexico’s R&D and manufacturing capabilities.

According to Mexico’s Confederation of the National Chambers of Commerce (CONCANACO), Mexico captured US$32 billion in FDI during the first nine months of 2022, a 29.5 percent increase when compared to the same period in 2021. The manufacturing industry was the most influential sector, representing 36.3 percent of the country's total FDI, with the US and Canada standing out as the two biggest commercial partners for Mexico.

Nearshoring remains a key element in FDI attraction. In October 2022, Mexico received at least 20 new investment projects linked to these types of activities, with over US$17.2 billion in FDI during the first 10 months of 2022, a 25 percent increase over last year, as reported by MBN. Mexico’s exports during 3Q22 have already surpassed pre-COVID-19 levels, increasing by 11.4 percent when compared to last year and 4.1 percent versus 2019.

Within the automotive industry, the country remains a key manufacturing hub thanks to a highly specialized labor force and its geographic proximity to the US, one of the most important markets in the world. The national auto parts market will reach US$109 billion in 2023 and surpass US$110 billion in 2024, said the National Auto Parts Industry (INA), an all-time high for this sector, which is expected to keep growing. “In recent months, over US$10 billion in FDI has been announced, which will be reflected in the first months of next year,” said the organization.

Amid global manufacturing challenges due to supply chain disruptions and scarcity of raw materials, Mexico’s market is showing strong signs of stability. Mexico’s manufacturing GDP amounted to US$2.7 billion in 2Q22, an 3.67 percent increase when compared to 1Q22, according to the federal government. 

The Future of USMCA
USMCA brought a shift in paradigms in Mexico’s automotive industry. The reevaluation of the agreement’s rules of origin, its rapid response mechanism and the dispute regarding energy policies have been the most controversial points between the member countries. According to anonymous sources, the posture held by Mexico and Canada regarding the rules of origin will be favored in the latest discussions. Both countries consider that if an auto part complies with the minimum required Regional Value Content (RVC), it can be considered to have a 100 percent RVC in the total sum of RVC of a vehicle. The US argued that RVC value of an auto part cannot be rounded up to 100 percent.  

Despite the controversies, experts agree USMCA will boost the competitiveness of the country’s sector, as Esteban Martínez Mejía, Head of the Liaison Unit for Labor Justice Reform highlighted during this year’s International Automotive Industry Congress (CIIAM). “The measures implemented within USMCA, such as the new labor unionization model and the rapid response mechanism, are unique in the world and unprecedented. New trade agreements are beginning to implement these measures,” said Martínez. He also explained that all the rapid response mechanism that have been activated due to non-compliance with labor standards have been effectively resolved without external intervention.

Electromobility as a Unified Response
All signs point towards the use of EVs to create a more sustainable industry and as a manufacturing powerhouse, Mexico has started to prepare for this industry shift. On June 14, US Special Presidential Envoy for Climate John Kerry met with President López Obrador to discuss the country’s plan to speed up its energy transition. "You will see Mexico's commitment. Mexico is already going to meet its goal of 35 percent clean energy [production], but the president asked to raise this," said Foreign Minister Marcelo Ebrard as he left the meeting.

The President also met with the executive directors of Stellantis to offer a reachable and trustworthy guide for automakers that seek to invest in the hybrid and EV market in the country, according to Rogelio Ramírez de la O, Minister of Finance and Public Credit. “We can offer reliable guidance to companies planning for the long term to ensure sufficient energy supply and a realistic and effective transition to clean energy as part of a comprehensive process,” said Ramírez de la O via his Twitter account.