Resilient and Adaptable: Mexico's Automotive Industry Shines
Mexico's automotive industry has emerged as a bright spot amid a challenging global market, demonstrating impressive resilience and adaptability in the face of the COVID-19 pandemic. The industry is well positioned to take advantage of the global reorganization of supply chains, as it has become increasingly competitive and attractive to investors. However, the sector is also under increasing pressure to adopt Industry 4.0 to improve its competitiveness and address sustainability concerns, as highlighted by industry leaders at the Mexico Automotive Summit 2023.
“The automotive industry has relied on the same business model, processes and supply chain for over a century; however, the industry's exposure to recent shocks has prompted it to innovate and adapt. With its strategic location, global integration and talent generation, Mexico has the potential to emerge as a formidable global competitor in the industry,” says Rodrigo Centeno, Senior Marketing Director, Nissan Mexicana.
The country’s automotive industry is recovering from the pandemic, primarily driven by a push for greater efficiency. The sector has long relied on the same models and processes, but recent shocks have forced it to make significant innovations. While Mexico is well-positioned to become a global competitor, recovery has not been as swift as observed in other parts of the world. National consumers remain financially fragile, and the industry's recovery has not translated to significant growth in domestic demand. Despite these challenges, Mexico's automotive industry represents a beacon of hope for the global industry and acts as a central hub for the generation of new technologies, says Gerardo Gómez, Senior Director and Country Manager MX, JD Power.
Nevertheless, Mexico's automotive industry is poised to become a global hub, thanks to several key competitive advantages. One of these is its favorable geography, which provides convenient access to the US, the world's largest automotive market. Mexico's location also enables it to be a hub for global distribution and logistics, which is particularly relevant as supply chains become more complex and fragmented. The country’s automotive industry benefits from global integration, which is driven by free trade agreements that promote cross-border investment and trade. Finally, Mexico has a large and skilled workforce that is capable of generating new ideas and technologies, making it a fertile ground for innovation. As companies anticipate greater diversification of their portfolios, Mexico's competitive advantages position it as a leading destination for foreign investment in the automotive sector, industry experts agree.
To fully leverage the nearshoring interest in the industry, it is also crucial for both the federal and state government to offer legal incentives that can instill investor confidence and accelerate investments in the infrastructure necessary to support the industry's transition to electromobility and Industry 4.0.Private companies in Mexico's automotive industry are actively pursuing Industry 4.0 transformations to improve their competitiveness and address sustainability concerns. However, there is a lack of understanding of the concept, and some companies are applying technologies without a long-term application strategy. To maximize the benefits of Industry 4.0, “a diagnostic process is necessary to identify areas of opportunity and make processes more efficient,” recommends Alberto Torrijos, Partner, Automotive Leading Consulting, Deloitte.
Mexico's automotive industry is at a crossroads, trying to use technologies to identify the general and individual needs and wants of consumers, while also addressing sustainability concerns. “The industry is transforming at an impressive speed. Sustainability gives the industry a boost and it has become a goal to be achieved,” says Francisco González, President, INA. In the supply chain, there are various levels of maturity across companies and traditional ones may not be prepared for the electrification of mobility. Investment is critical at this moment, especially considering that internal combustion (ICE) vehicles are less expensive and easier to produce, which is why they became popular over electric vehicles (EV) in the first place.
However, climate change has forced companies to explore and innovate EVs and their components to make them increasingly accessible. “Two significant barriers to electrification are battery costs and infrastructure,” says Centeno. In response, some companies are rethinking the problem, such as Nissan's POWER model, which will serve as an important intermediary option, especially in developing countries where it will take time to build infrastructure while remaining competitive with combustion vehicles. The launch of the POWER model in Japan and other markets has been well-received, but the ecosystem is complex, making return on investment difficult to capture.
“There is a wind of a paradigm shift driven by social values, challenging companies to address these goals, however, it is easier said than done, and there are important challenges to overcome,” says Centeno.