USMCA, Electromobility to Boost Mexico’s Automotive Sector

The automotive industry in Mexico is making a steady recovery as the world leaves the pandemic behind. The industry is capitalizing on many opportunities, including the growing electromobility trend and the reconfiguration of global supply chains. Nevertheless, several challenges must be addressed to ensure the industry's long-term growth and stability.

Mexico has remained a steady bright spot in a challenging global market thanks to its privileged location, skilled workforce, extensive supply chain and experience working with many key players. After a positive 2022, the industry is preparing to take off thanks to higher production and vehicle availability. “Inventory levels are improving in 2023, although this improvement seems asymmetric between brands,” says Guillermo Rosales, Executive President, AMDA.

Mexico's light vehicle market has grown during the first two months of 2023, with production showing a 6.1% increase and exports growing by 12%, reports Rosales. This growth is a positive sign for the industry, indicating that Mexico continues to be a major player in the global automotive market.

Despite the US market contracting in sales by 10%, the Mexican market grew thanks in part to the country's attractive cost structure, which is highly competitive compared to other manufacturing hubs in the region. 

The recovery seen in 2022 allowed the industry to kickstart 2023 in a good position, with domestic light vehicle sales growing by 24.1% year over year in the first two months of 2023 for a total of 196,325 units, says Rosales. This growth points to the industry's resilience and ability to adapt to changing market conditions. “We expect to end 2023 with production and export levels similar to 2019,” he adds.

The heavy vehicle market in Mexico also saw a strong start to 2023. During the first two months, production grew by 22% and exports by 13.7%. During the period, domestic heavy vehicle sales grew by 32.1% year over year. 

Sales of light vehicles have been consistently increasing thanks to the recovery in production and the larger availability of vehicles at dealerships. In 2022, the average waiting time for a new light vehicle was four months; now, the average waiting period is less than two months and vehicles that were sold months ago are finally being delivered. Mexico's automotive industry is expected to close 2023 with 1.14 million sales of light vehicles and 43,108 sales of heavy vehicles, says Rosales. 

However, this scenario does not consider crises similar to the one taking place in the US banking system after the collapse of Silicon Valley Bank, explains Rosales. He highlights the need for continued stability in the global market to support the growth of the automotive industry in Mexico. Also, the country’s automotive sector faces challenges in the shape of inflation and restrictive monetary policies, which could impact the availability and affordability of vehicles in the market.

Mexico's automotive industry faces many challenges, but there are also opportunities that could positively impact the economy, including the electromobility trend, the USMCA and the deteriorated relationship between China and the US.

One of the most significant opportunities is electromobility. Tesla's decision to build a Gigafactory in Nuevo Leon, Mexico, has been well received by the sector, as it will benefit the country's production of auto parts and the adaptation of production lines. Tesla is said to be planning a US$5 billion investment in this Gigafactory. The production of EVs presents a unique opportunity for Mexico to position itself as a leading producer of auto parts for the global market. The sector has attracted significant investments and is starting to embrace its potential as an electromobility manufacturing powerhouse. Other companies are also bringing their electromobility projects to Mexico, such as BMW's US$866 million investment to implement its “Neue Klasse” electric platform.

Another opportunity is the USMCA, which has adjusted the Rules of Origin for the automotive industry. This adjustment has accelerated the production capacity of auto parts and mobilized the automotive sector. The auto parts industry is now experiencing higher sales than during pre-pandemic times. The USMCA also had a profound impact on the sector’s labor practices and environmental standards, helping to create a favorable business environment that encourages investments and trade, while fostering innovation and technological development. 

Finally, the deteriorating relationship between the US and China is also forcing the relocation of production chains to Mexico, making the country an attractive destination for foreign investment.

To capitalize these opportunities, Mexico has to overcome some obstacles, especially the lack of planning and old infrastructure. The industry must invest in modernizing its infrastructure to keep pace with global competition and meet the demands of modern consumers. Another challenge is the lack of clean energy supply at competitive prices. "We cannot aspire to establish ourselves as a major producer of EVs, if we do not guarantee the supply of sufficient, clean and affordable energy,” says Rosales. The automotive industry is a significant energy consumer, and the lack of affordable clean energy can impact the industry's competitiveness.

The industry must also work closely with education institutions to develop relevant training programs that prepare students for the demands of the automotive industry. The industry also has to take proactive measures to provide vocational and technical training programs to enhance the skills of the workforce, thereby ensuring a steady stream of talent.