Nearshoring Boosts Mexico’s Auto Part Market

Foreign companies have turned to nearshoring after the USMCA treaty entered into force. Investments in Mexico have increased thanks in part to its closeness to the US market, strengthening the auto parts sector and consequently boosting the local rubber industry.

“The auto parts industry has adopted nearshoring as a result of the new normal. This has the objective of bringing closer supply chains to protect the industry from pandemic risks and it brings cost benefits,” said Francisco González Díaz, President, National Industry of Auto parts (INA), as reported by TyT.

Mexico’s young labor force, competitive energy prices and innovative ecosystems are some of the factors that are making the country an attractive destination to relocate the operations of several companies, according to Expansión.

“Nearshoring offers a great opportunity for countries like Mexico and Canada to become pillars of a strong manufacturing hub in North America, reducing the current dependency on Asian suppliers and the need to navigate through the complexity of globalized logistics, thus minimizing supply chain risks,” said Felipe Sanmiguel, Regional Manager and Representative in Monterrey, Export Development Canada-EDC, to MBN.

Despite materials and semiconductors shortages, Mexico produced more auto parts in 2021 than in 2020. Some manufacturers that moved their operations to China a few years ago are now choosing Mexico to relocate their production. This explains why the production of auto parts is growing regardless of the low production of vehicles, said Manuel Montoya, Director, CLAUT Cluster Automotriz de Nuevo Leon, to MBN.

Following the USMCA, the regional content of light vehicles increased by 12.5 percent and Tier 1 providers are now required to increase regional content from 63 percent to 75 percent. These changes are increasing the need to find and incorporate Tier 2 providers in Mexico. Owing to this, Mexico has become the ideal location to relocate suppliers for North America, according to Montoya.

Last year, the auto part industry represented 50 percent of national nearshoring. Also, investments in the auto parts industry represented 32 percent of the total investments made in manufacturing in the country. Most of the auto parts companies are establishing in the north of the country and El Bajio region, said Carlos González, Director, Hultek, to Notipress.

As a result, the rubber industry is experiencing growth, according to El Economista. In 2020, the total value of manufactured rubber products in Mexico was US$1.43 billion. In 2021, production increased by 19.3 percent. The rubber production also increased by 20 percent and tire production by 50 percent. While global companies increasingly turn to Mexico for rubber supply, this sector still needs to expand its activities outside of the manufacturing of tires, said González.