Mexico’s Automotive Industry Set FDI Record in 1H23

Mexico's automotive industry attracted a record-breaking amount of Foreign Direct Investment (FDI) in the first half of 2023, receiving over US$5.024 billion for the production of cars and trucks. This figure surpassed not only previous records for a similar period but also set a new benchmark, highlighting Mexico's position as a highly competitive player in the global automotive market.

The surge in FDI showcases Mexico's modern manufacturing facilities, skilled workforce and dynamic production capabilities, primarily geared towards export markets. The automotive sector has long been a shining star in the country's economy, known for its ability to deliver high-quality vehicles at competitive prices.

According to data from the Minister of Economy (SE), the previous highest FDI inflow was recorded in 2019, with US$4.281 billion invested in the industry throughout the entire year. However, Mexico has now exceeded that figure within just six months, underscoring the industry's resilience and attractiveness to foreign investors.

The positive momentum extends beyond FDI. Mexico's total exports, excluding services, witnessed a substantial 16.9% increase in 2022 compared to the previous year. Notably, automotive products, textiles, scientific equipment, food, beverages and tobacco were the key drivers of this growth. The automotive sector experienced an increase of 13.8% in exports, with a 9.8% rise in sales to the US and a 39.6% surge in sales to other markets.

Mexico received US$1.398 billion in FDI for the production of auto parts in 1H23. This amount positions the country to potentially break the previous record set in 2017 when US$3.448 billion was invested in the auto parts sector for the entire year.

The positive industry trends are also reflected in Mexico's trade performance. In the first half of 2023, Mexican automotive exports reached US$89.403 billion, representing a 14.2% year-on-year increase, according to data from Banxico.

Globally, the production of light vehicles experienced an 8.8% year-on-year growth, reaching 65.2 million units during the first nine months of 2023. This growth was primarily driven by increased production volumes across North America, the EU, Middle East, Africa, Asia and China.

While the automotive industry is poised for continued growth, challenges lie ahead. Seating manufacturer Adient, for example, anticipates a tough operating environment for the remainder of 2023. The industry must navigate supply chain disruptions, manage inflationary pressures and raw material price volatility, address increased interest rates and respond to fluctuating consumer demand.

Mexico's manufacturing sector, which experienced significant growth from 2016 to 2019, faced a decline in 2020 due to the adverse effects of the COVID-19 pandemic. However, the sector rebounded strongly in 2022, with a 5.2% growth compared to the previous year, driven by increased foreign investment and external demand.

Looking ahead, analysts predict that the global automotive industry will grow by 5% in 2023 compared to 2022, offering further opportunities for Mexico's robust manufacturing sector.

Mexico's automotive industry's outstanding performance in attracting FDI and driving export growth underscores its status as a global automotive powerhouse, poised to continue making significant contributions to the country's economic development in the years to come.