No New Assembly Plants in Mexico?By Jorge Ramos Zwanziger | Mon, 03/22/2021 - 19:13
COVID-19 has reduced vehicle demand all over the world and Mexico is no exception. "The recovery in automotive sales has stalled following 20 percent year-on-year decreases for five months,” said Julio Santaella, Head of INEGI, according to a previous MBN article. Mexico has a 5-million-vehicles yearly production capacity but in 2020, only 3 million were assembled, mostly to be shipped to other countries.
The COVID-19 pandemic is not the only problem hosting the industry; changes to USMCA’s rules of origin are also stressing local manufacturers. “USMCA’s new rules of origin will imply a restructuring of OEM operations," said former Executive President of AMIA, Eduardo Solís, in an interview with MBN. Rules of origin give OEMs benefits when exporting but require a certain percentage of a vehicle to be manufactured in the North American region. To continue enjoying tariff benefits when exporting to the US, “companies established in Mexico must undergo a great effort depending on their previous strategy to face the change in rules of origin so they can export tariff-free in North America,” Fausto Cuevas, CEO of AMIA, told MBN in an interview.
This situation has experts questioning whether Mexico will see new manufacturing plants in the short term. “We do not see an additional volume [in vehicle demand] that justifies the construction of new plants,” explained Guido Vildozo, Specialized Analyst for IHS Markit, to Expansión. While the country might not see new OEM plants, there are still abundant opportunities in the automotive supply chain. “Assemblers, at least the most important ones, are already here. The opportunity to attract investment lies in the supplier base,” said Luis Manuel Hernández, President of the National Council of the Assembly and Export Manufacturing Industry (INDEX), to Expansión.
USMCA and the COVID-19 pandemic could lead companies to nearshoring, said Solís to MBN. While there might be no new plants in the horizon, assemblers are currently investing in the expansion of their current factories, bringing new vehicle models and transforming their local plants. This week, Ford announced that it plans to produce a second electric vehicle in its manufacturing plant in Cuautitlan, State of Mexico, where it already produces the Mustang Mach-E, reports Expansión. German company ZF Friedrichshafen also plans to expand its production in Queretaro, reports El Economista. ZF Friedrichshafen plans to invest MX$1.279 billion (US$62.27 million), which will allow for the creation of 500 new jobs.