Mexico Automotive Summit 2021 Impact Report by Mexico Business Publishing

IMPACT REPORT

MEXICO AUTOMOTIVE SUMMIT 2021

Networking Platform Sponsor

Gold Sponsors

Silver Sponsor

2021 2020 was a historic, unprecedented and challenging year. The year brought disruption and digitalization, combined with a strong sense of humanism. The automotive industry, as other economic sectors, was proactive and creative in adapting to the new reality, reflecting the sector’s strong sense of innovation.

OEMs and suppliers of all sized worked to secure production lines and prevent outbreaks. Once US demand for both new vehicles and auto parts began to normalize in the second half of the year, the industry accelerated production to avoid disruptions in the supply chain. Further down the value chain, homebound salespeople spent much of 2020 working on solutions to grow online sales channels. Online marketplaces became a powerful ally to set the right strategies for online marketing, digital sales and customer satisfaction.

Over 400 industry leaders attended the first virtual edition of Mexico Automotive Summit on Mar. 24-25 to address the challenges and opportunities that COVID-19 and new consumer trends have brought to the industry of tomorrow. From vehicle and auto part production to digital sales and 5G applications, the summit provided a first-hand perspective on how the industry is developing and the role Mexico will play in the global scene.

C O N F E R E N C E I M PAC T

226

companies

speakers

How would you rate the quality of the conference program and speakers?

sponsors Breakdown by job title

visitors to the program on MBE website

11,264

conference participants

427

CONFERENCE SOCIAL MEDIA IMPACT

4,538

direct impressions during MAS

direct pre-conference LinkedIn impressions

39,771

4.49%

conference engagement rate

6.75%

5.39%

5.2% President/ Board member/ Partner 16.1% CEO/ CFO/ COO/ Director General/ Country Manager 19.7% VP/ Director 16.4% Plant Manager/ Manager 4.6% Purchasing Manager / Director 30.8% Sales Manager / Sales Director 7.2% Engineer/ Analyst

PRE- CONFERENCE SOCIAL MEDIA IMPACT

click through rate during MAS

3.90%

6% Greatly exceeds expectations 39% Exceeds expectations 50% Meets expectation 6% Below expectations

pre-conference click through rate pre-conference engagement rate

C O N F E R E N C E I M PAC T

Mexico’s leading B2B conference organizer introduces the world’s leading event networking platform. Delivering intent-based matchmaking powered by Artificial Intelligence that connects the right people. Network, no matter where you are.

1,868 matchmaking communications

369 participants

How would you rate the quality of the matchmaking on Brella?

217 1:1 meetings conducted

17% Exceeds expectations 67% Meets expectation 17% Below expectations

MATCHMAKING INTENTIONS

1,409

Total

1,955

Trading

109

Recruitment

437

Investment

C ompan y Attendance

• 3C Metrology

• Brella

• E-Neutras

• 3M

• Bridgestone

• E-TRACTION

• Aceites Superfinos

• Brose

• Eureka

• Administración Portuaria Integral Acapulco

• Camcar Grupo Automotriz

• Evonik Industries

• CHG Meridian Mexico

• Faurecia

• Chihuahua State Government

• Fenkell Automotive Services

• Cluster de Herramentales

• Flowsmart

• CNW Courier Network

• Ford Motor Company

• Cocofact / HSBC

• FOTON

• COFOCE

• FrontierView

• Colliers International

• FullSpectrum Leadership

• Connected Capital

• GALNIK

• Constructora INSUR

• GarantiPLUS

• Controlar

• GASCOMB

• Cormax Rigging Supply

• GED

• Crane Worldwide Logistics

• General Motors

• Creative Foam

• Gerzo Administración

• CS Quaker State

• Giant Motors

• CS, Shell & Quaker State de Mexico

• GLM Components

• Cuadrante

• Global Automakers of Canada

• Cummins

• GM

• Daimler

• GMD Stamping

• Daimler Freightliner

• Government of Chihuahua

• Daimler Trucks

• Government of Guanajuato

• Daimler Vehículos Comerciales

• Government of Jalisco

• DANA

• Government of Ontario

• DeSK Mexico

• GRAMMER

• DiDi

• Grupo CTT

• DINA

• Grupo Farrera Automotriz

• Distribuidores del Istmo

• Grupo Surman

• Donghee Mexico

• GTO Automotive

• Draxton Global

• HAL Aluminum

• DRG Technologies

• Harman

• Banco Nacional de Comercio Exterior SNC

• Eaton Corp

• HINO

• Ecléctico

• Hogan Lovells

• Band of Insiders

• EDAG Mexico

• Holland House Mexico

• BBS BRANDS

• E-DRIVE

• Honda

• Bocar Group

• EKK Eagle Industry

• HSBC

• BorgWarner

• Energy to Market (E2M)

• Hyundai

• Agencia Pro San Luis • AIZ • Alchemia • Alian Plastics • Allison Transmission • ALT Technologies • AMAVe • AMDA • another company • ANPACT • Arbomex • ARIDRA • Ariza • Assurant • AUTOCOM • Autocom Credit / ClikAuto Mobility • AutoForm • Automotive Cluster Central Zone (CLAUZ) • Automotive Cluster Chihuahua • Automotive Cluster Guanajuato (CLAUTGO) • Automotive Cluster Nuevo León (CLAUT) • Automotive Industries Association of Canada • AWL • Axalta Coating Systems Mexico • Axon Interconex • BAIC

C ompan y Attendance

• Iberdrola

• Musashi

• SW-Machines Mexico

• iCaranty

• National Car RentalEnterprise Rent A Car

• Tachi-S

• IDIADA Automotive Technology • IHS Markit • INA • Indiana • Industria Nacional de Autopartes (INA) • Inovan • JeffreyGroup • Juntos Shell & Quaker State Mexico • JWB Manufacturing • Kavak • Kenworth • Kikoya • LAVARTEX • MacLean-Fogg Component Solutions • Magna Powertrain • MAN Truck & Bus • Manufacturas Estampadas • Maquinados y Maquilas Especiales • Mar Bran • MAS SEGUROS • Mayfosa • Mayoreo López Díaz • Mazda • Mazda Picacho • MBP • Mejores Empresas Mexicanas • MEM • Mercado Libre • MERS Financial • Metalsa • Mitsubishi Motors • Mitsui & Co. Power Americas • Moder Machine Shop • Mold Supply • Moldes Saltillo • Monsalvo Duclaud

• Navistar • Newlink • Nissan Mexicana • Northland Power Energia • OECHSLER • Orchestrating Your Success • Palo Alto Networks • Partner Fleet • PC Rent • Piasa - Shell Industrias México • Picacho Grupo Automotriz • Pirelli • Porsche • Prettl • Prime Action Consulting • PRODENSA

• TASSM • Tenneco • The Haskell Company • Thyssenkrupp Automation Systems • Tiba • Timken • TIP Mexico • TM Racing Team • Toyota • Toyota Motor Sales • Traffilog • Trans-Matic Precision Metal Forming • Trucks • Tuxpan Port Terminal • UNADM • Universal Robots

• PROMI-MEX

• Universidad Popular Autonoma de Puebla (UPAEP)

• Quaker State

• Vibracoustic de Mexico

• Qualcomm

• VITRONIC

• Ranault

• Volkswagen

• Robert Bosch

• Volkswagen Truck & Bus

• Sale-U

• Volvo

• Scania

• Von Wobeser y Sierra

• SELECSA

• Vrumm

• SELIMAR 2000

• Wallenius Wilhelmsen

• Senator Logistics

• Warren Automotive

• Shell

• Waze

• Shell Lubricants

• WMP Mexico Advisors

• Shift 3D

• World Trade Center San Luis Potosi

• Siemens

• WWL Vehicle Services

• Sonavox Mexico

• Yanfeng

• Special Carbide Tools

• Yazaki

• SSA

• Zacua

• Steele Racing Products

• ZF

• Stellantis

• ZF Chassis Technology

• Surman

P rogram

MARCH 24 TH , 2021 08:00

NETWORKING SESSION 1 - AI-POWERED 1:1 MEETINGS

08:45

WELCOME ADDRESS

09:00 DEFINING TRENDS FOR THE AUTOMOTIVE INDUSTRY OF TOMORROW Speaker: MIguel Barbeyto, President of Mazda

10:10

CHALLENGES FOR THE HEAVY VEHICLES MARKET: THE EFFECTS OF THE PANDEMIC Moderator: Miguel Elizalde, President of ANPACT Panelists: Alejandro Mondragón, CEO of SCANIA Flavio Rivera, CEO at Daimler Frank Gundlach, Director General of Man Truck & Bus México Mauricio Medina, CEO of TIP

11:15 VEHICLE DEMAND IN NORTH AMERICA AND HOW IT AFFECTS MEXICO Moderator: Guido Vildozo, Senior Manager Americas of IHS Markit Panelists: José Zozaya, President of AMIA Jean-Francois Champagne, President of AIA Canada David Adams, President of Global Automakers Canada

12:00

12:30

NETWORKING SESSION 2 - AI-POWERED 1:1 MEETINGS

REDUCING AUTOMOTIVE SUPPLY CHAIN CARBON FOOTPRINT WHILE SAVING COSTS Moderator: Moderator Name 1, Company Name Panelists: Hans Kohlsdorf, Founding Partner of E2M, Energy to Market Susanne Lehmann, Production Director at Volkswagen North America Manuel Guevara, General Manager ar BROSE

P rogram

13:15 DIGITALIZATION OF AUTOMOTIVE MANUFACTURING Moderator: Tarsicio Carreón, President of Chihuahua Automotive Cluster Panelists: Alejandro Preinfalk, President of Siemens Matt Myrand, Director of Advanced Manufacturing and Supply Chain at Faurecia Manuel Sordo, General Manager LATAM at Universal Robots Marcio Delgado, VP of Production and Global Manufacturing at ZF

14:00

NETWORKING SESSION 3 - AI-POWERED 1:1 MEETINGS

15:00 SUPPLIERS DEVELOPMENT UNDER INSOLVENCY TIMES Moderator: Manuel Montoya, President of National Automotive Cluster Network & CLAUT Panelists: Felipe Villareal, CEO of Alian Plastics Ricardo Coto, Procurement Coordinator at Metalsa

16:00

ADVANCES OF ELECTRIFICATION OF THE AUTOMOTIVE SUPPLY CHAIN AND UPCOMING PRIORITIES Moderator: Nazareth Black, CEO of ZACUA Panelists: Rodrigo Centineo, Founding Partner at E*Drive Elías Massrí, CEO of Giant Motors Edgar Estrada, Managing Director of Volkswagen Brand Mexico Ernesto Sánchez, Minister of Economic Development of Jalisco State Government Luis Lozano, President of Toyota Motor Mexico

17:00

NETWORKING SESSION 4 - AI-POWERED 1:1 MEETINGS

19:00

END OF DAY 1

P rogram

MARCH 25 TH , 2021 08:00

NETWORKING SESSION 1 - AI-POWERED 1:1 MEETINGS

08:50

WELCOME ADDRESS

08:55

TAKING THE LEAP INTO DIGITAL SALES, EXPERIENCES FROM DEALERSHIPS AND E-COMMERCE Moderator: Guillermo Rosales, Director General of AMDA Panelists: Jorge Vallejo, President & CEO of Mitsubishi Motors Carlos García, CEO of KAVAK Jorge Dávila, Head of Vehicle Market Place of Mercado Libre Fernando Enciso, CEO of Grupo Surman Israel Escutia, Director General of GarantiPLUS

10:00 THE FUTURE OF SHARED MOBILITY VS CAR OWNERSHIP Moderator: Anasofía Sánchez, Director General at WAZE LATAM Panelists: Raymundo Cavazos, CEO of VOLVO Gretta González, General Manager at UBER Juan Andrés Panamá, CEO of Mexico and Argentina at DiDi Aldo Alarcon, Director General of Mobility and Transportation at Mobility ADO

11:00 DEFINING TRENDS TOWARD COMMERCIAL SUCCESS Speaker: Miguel Barbeyto, President of Mazda

11:30 CONNECTIVITY, 5G & AUTONOMOUS VEHICLES Moderator: Alejandro Enriquez, Head of Automotive Division at Mexico Automotive Review Panelists: Luz Elena Jurado, CEO of VOLVO Trucks Ricardo Anaya, Staff Product Manager

12:00

NETWORKING SESSION 2 - AI-POWERED 1:1 MEETINGS

P rogram

12:30

14:00

NETWORKING SESSION 3 - AI-POWERED 1:1 MEETINGS

16:00

17:00

NETWORKING SESSION 4 - AI-POWERED 1:1 MEETINGS

19:00

END OF DAY 1

H ighlights DEFINING TRENDS FOR THE AUTOMOTIVE INDUSTRY OF TOMORROW Companies at the different levels of the supply chain present different perspectives on the advances in smart manufacturing, relocating operations, the impact of electric vehicles, stricter environmental standards, as well as the resilience needed to emerge after the pandemic during Mexico Automotive Summit 2021 on Wednesday, Mar. 24. During the opening presentation, President of Toyota Motor Mexico Luis Lozano and President of INA Oscar Albín addressed the progress the country has made toward the industry’s consolidation and what still needs to be done to get there faster. “The world is in a permanent transformation. However, the pandemic has accelerated innovation in industrial processes from all sectors, including the automotive industry, where change was already underway,” said Lozano. According to him, in all industries, there are three drivers that can accelerate transformation in a significant way. 1. New consumer needs 2. Business disruptions 3. Abrupt public policy changes with the potential to transform a society’s reality

“The world is in a permanent transformation. However, the pandemic has accelerated innovation in industrial processes from all sectors, including the automotive industry, where change was already underway,” Luis Lozano

President of Toyota Motor Mexico

In the automotive sector, Lozano explained, the change in consumer needs is quite clear. “In many of the most developed markets in the world, young people no longer want to buy cars. I see it even with my children. When I was old enough to drive, any excuse was good to get my parents to lend me the car. Meanwhile, my children are not interested in driving,” he said. “There are changes in consumers that are more profound than we can estimate now.” All industries today are threatened by disruption, Lozano added. But crises have been a driver

for change at Toyota. “We have grown stronger and learned from them (crises). The most severe crises we have suffered in recent years, such as the Fukushima earthquake, were brutally important because they broke many value and supply chains,” he said. “It made us question the way we operated in Japan.” Today, Toyota is undergoing a profound transformation, said Lozano. “We want to move from being an automotive company to being a mobility company. When people can move anything is possible,” he continued. The company will focus on developing new products and solutions centered around Connected, Autonomous, Shared, Electrified (CASE) technology. When it comes to electrification, Toyota has high aspirations. By 2025, the company plans to have an electric version of every vehicle in its lineup. By 2030, it aims for the majority of its sales to come from EVs. Meeting these goals and achieving this transformation, Lozano said, is not just Toyota’s job. “There are non-traditional partnerships in the automotive industry that are needed to achieve our CASE goals. We have, for example, partnerships with Uber, Microsoft and even a joint venture with an air taxi company.” Against this scenario, Albín said that Mexico has plenty of room to maneuver. “USMCA will bring great opportunities to the supply chain. In addition, there is still no end in sight to the trade war between China and the US, which opens the door to nearshoring,” he explained. Mexico’s biggest competitor in terms of incentives, Albín said, is the market in southern US, which offers large tax incentives to companies that decide to set up production there. “With the departure of ProMéxico, no one is properly promoting the opportunities that the country has to offer. Currently, a group of industrial park companies is looking for representative offices in other countries to capture that investment,” he said. Alongside promotion, Albín believes that investment in education is also vital. “We need better engineers. One of the things we are doing is working with CONALEP to incorporate technology into academic plans so students can be more competitive. In this way, companies

H ighlights save money and time when training new Mexican hires.” The challenge for Mexico will not be minor. According to Lozano, comprehensive public policies are required. “It is not only necessary for companies to be convinced of this transformation and to invest resources. We are all part of this transition and we must help to convince our governments to implement comprehensive public policies in terms of time and content.”

“Many governments are prone to imposing regulations without thinking that this is only one part of public policy. The most comprehensive and successful public policies in the world also involve infrastructure and incentives,” Lozano pointed out. “We also have to make sure that the electricity being generated in the country is produced by renewable and clean sources. There is no point in having electric vehicles if that energy comes from non-renewable sources.”

I N C E NTIVE S , I N FR A S TR U C T U R E N E E D E D TO A DVA N C E H E AV Y VEHICLE TRENDS Lower costs, better management and higher sustainability in heavy vehicles are already within grasp, said panelists during Mexico Automotive Summit’s first panel on Wednesday, Mar. 24. However, infrastructure needs to catch up. Further government incentives and enhanced financing options are also needed to spur growth and help Mexico renew its vehicle fleet. Miguel Elizalde, President of ANPACT and moderator of the panel, asked a variety of questions to Alejandro Mondragón, CEO of SCANIA; Flavio Rivera, CEO of Daimler Vehículos Comerciales México; Marcelo Caraveo, Risk Director and Asset Manager of TIP and Frank Gudlach, Director General of Man Truck & Bus, regarding the biggest trends in the sector. “Mexico is the fourth exporter and sixth producer of heavy vehicles in the world,” began Elizalde. But the country has taken a hit, just like every other country in the world, as a result of the pandemic. This meant 31.4 percent export cuts during 2020, with another drop in early 2021.

“We hope that an economic reactivation in the US improves the situation,” said Elizalde. Rivera noted that “an interesting boost” was indeed already visible in that market.

“The technologies are already here but it is a matter of costs, as well. I do not think Mexico will remain behind within this global reality,” Frank Gundlach

Director General of Man Truck & Bus Mexico

Despite the challenges, Mondragón noted that countries like Mexico had a lot to gain if companies renewed their vehicle fleet. Even though every separate crisis is different, the concept is always similar. “We are in a country where the currency is exposed to fluctuations,” he added. Especially in Mexico, companies would therefore need to establish a business model that takes the potential of these fluctuations

H ighlights

into account. Gundlach agreed with Mondragon, noting that older vehicles are often inefficient, which generates higher costs, he said. “The concept of total cost of ownership (TCO) is especially important. Maintenance and resale value, as well as fuel consumption are crucial,” continued Mondragón, noting that there is a large Mexican market of around 400,00 old units that are pending renovation. But to make this happen, companies must address different challenges. “In 2020, companies were more careful to preserve their liquidity and fleet renovation was not a priority,” Caraveo outlined. Financing options are currently somewhat limited, as well, further preventing renovations. In this regard, support in the form of incentives from the government and a greater effort from all companies involved are needed. With new options on the table in terms of financing and greater incentives, the sector can overcome its aging fleet issues, said Caraveo. Among the benefits of adopting new heavy vehicles is the greater technological advancements they can offer, panelists firmly agreed. Gundlach sees digitalization as especially interesting. “Digitalization has a lot to do with connectivity,” he explained. Through telematics and digital solutions, companies can monitor their trucks and busses easily, improving performance and lowering costs and consumption at the same time. Operating costs can drop as far as 30 percent by adequately implementing technology, Gundlach noted. “These new technologies can help fleet

managers to make decisions on the spot,” concurred Caraveo. Mondragón noted the importance of the information technology provides to companies. “The availability of information we have these days was only a dream 15 years ago,” he said. Now, companies can manage a digital twin of every truck and bus, monitoring temperature, pressure and speed. This helps to improve and maintain vehicles. Furthermore, Mondragón said SCANIA uses this information to incentivize clients and their drivers to operate more efficiently by rating drivers with a grade going from A to D. The information can be used to improve performance, which is incentivized by lower payments per kilometer. Dynamic maintenance plans, instead of traditional fixed plans based on kilometers, become a possibility as well. Rivera explained that there are three main pillars for heavy vehicles in the transport industry: sustainability, safety and connectivity, which often overlap. Planning, maintenance and adequate fleet management are crucial to reduce costs. But the technology that helps make this happen needs a fundamental basis. “Technology’s foundations lay in infrastructure. We need road, communication and fuel infrastructure, first,” he said. Mexico faces a great challenge in this regard. Rivera explains that the vehicles produced are already quite advanced, allowing for companies to meet strict environmental guidelines such as SEMARNAT’s NOM-044. But the country’s infrastructure to provide cleaner fuels is lacking at times. “Only

H ighlights 78 percent of the country has the infrastructure to supply ultra-low sulfur diesel,” Rivera said. Mexico needs to still take steps to improve access to cleaner fuels, compressed natural gas and electrical charging stations. “The technologies are already here but it is a matter of costs, as well. I do not think Mexico will remain behind within this global reality,” added Gundlach. The cost of new vehicles is a main barrier as well, Caraveo reminded the audience.

“In Mexico, it necessary to first make the use of sustainable fuel mandatory and then launch the technology,” argued Elizalde. Nevertheless, much can be gained if Mexico is incentivized to clean up its transport. “The potential to move transportation toward greener technologies will have a massive impact on the environment,” Mondragón said.

N O R T H A M E R I C A N E E D S A J O I N T A P P R OAC H T O H A N D L E COMMON CONCERNS The automotive industry is going through deep changes as new technologies reshape diverse aspects of the sector, from a vehicle’s carbon footprint to mobility itself. Moreover, the COVID-19 pandemic has cut vehicle production and sales to a fraction of what they were before. Under these circumstances, carmakers in North America must take a joint approach to handle the challenges brought by changing customer preferences, agreed speakers during the panel “Consolidating North America’s Automotive Hub.” During Mexico Automotive Summit on Wednesday, Mar. 24, representatives from the automotive industries of Mexico, the US and Canada discussed addressed the region’s leading vehicle and auto part manufacturing trends driving the sector. A year into the COVID-19 pandemic, the automotive industry keeps moving forward

in North America, propelled by different factors including USMCA. “NAFTA was a pretty decent trade agreement but it was 25 years old and it did not take new technologies into consideration. USMCA will incentivize the use of new technologies, such as electric transmissions,” said David Adams, President of Global Automakers Canada. Thanks to USMCA and the strong collaborative practices built by its three members, the region’s automotive industry is expected to continue growing, especially after the recent change in the US administration. “With the new US administration, we are seeing a much better alignment of policies and more potential for collaboration,” said Jean-Francois Champagne, President of AIA Canada. John Bozzella, President and CEO of The Alliance of Automotive Innovation, explained that the Biden administration has four priorities:

H ighlights addressing the COVID-19 pandemic, fixing the US economy, fighting climate change and social justice. “We are looking at a new administration that takes climate change very seriously,” said Guido Vildozo, Senior Manager, Americas at IHS Markit. The shift in approach toward climate change actually puts the US back in track with international treaties, leading to growing attention in sustainable vehicles.

said Champagne. Bozzella also remarked that to fully adopt electric vehicles, the sector needs to substantially invest in infrastructure. “Automakers and suppliers have already invested over US$250 billion in electrification,” he said. “The US has 2 percent of the global market of electric vehicles. If we want to increase that, we have to make significant investments in infrastructure.”

“The US has 2 percent of the global market of electric vehicles. If we want to increase that, we have to make significant investments in infrastructure.”

Another trend redefining the automotive industry is the perception of mobility as a service. “Users are no longer interested in owning a vehicle but in having access to a vehicle when they need it,” said Zozaya. While older generations placed great importance in owning vehicles, younger generations are mainly interested in access, allowing technology providers to gain a foothold in the industry and leading manufacturers to reevaluate their approach. “Vehicle manufacturers are beginning to define themselves as mobility providers,” said Adams. However, the growing use of mobility apps is also raising concerns among carmakers and users. “There are now global conversations about data privacy in light of a fleet that might be shared rather than owned,” said Champagne.

John Bozzella

President & CEO of The Alliance of Automotive Innovation

“USMCA’s rules of origin modernize the industry’s approach to technology. There is now a greater trend towards electrification and more sustainable vehicles. A modernized USMCA should give the industry opportunities,” said Bozzella. The treaty is expected to generate more opportunities for the three countries to embrace newer, more sustainable technologies, but there are still numerous barriers slowing down their introduction. “The need to generate the smallest carbon footprint is one of the factors boosting electric and hybrid vehicles in Mexico. But these vehicles represent only 2.6 percent of the total vehicle sales in the country,” said José Zozaya, President of AMIA. Champagne highlighted that these new vehicles could not easily replace internal combustion vehicles in all cases, however. “Canadians drive larger distances and use larger vehicles that are not as ready to transition toward electrification,”

Altogether, the adoption of new technologies, which accelerated even further in light of the COVID-19 pandemic, is forcing carmakers to remain flexible to stay ahead. “OEMs have to identify new technological solutions, partner with technology providers and increase efficiency through new talent and business models,” said Zozaya. However, the automotive industry also needs support in the shape of joint policies and approaches that unify the region’s efforts to consolidate and strengthen the sector. “We need complimentary policies in the region that support these goals,” said Bozzella.

DECARBONIZING THE AUTOMOTIVE SUPPLY CHAIN Over the past three years, most major automakers have announced detailed plans to reduce greenhouse emissions, not only in their own production plants and vehicles but across the entire value chain. For this to be possible, not only do companies and the private sector need to invest in new technologies. They also need incentives and public policies focused on supporting this transformation, agreed panelists at the Mexico Automotive Summit on Wednesday, Mar. 24.

“The energy sector is currently bustling in Mexico and there are great opportunities for power generation companies. There are also opportunities for industrial companies to take advantage of the very economical power generation opportunities, both conventional and renewable, that the country has to offer,” said Hans Kohlsdorf, Founding Partner at E2M. “Sometimes certain news stories overshadow these issues but there is an excellent offering in this industry.” Renewable energy prices,

H ighlights

Kohlsdorf added, have fallen worldwide and Mexico is no exception. “The country’s abundance of electricity is supported by the availability of natural gas. Today, in all industrial areas of the country, we are importing very cheap natural gas from Texas. We are also seeing small wind installations of one or three towers for industrial use.” Regarding incentives, according to Kohlsdorf, the country is in a favorable position. “Companies that invest in renewable energy generation have a tax incentive that allows them to deduct 30 percent of their investment from taxes in their first year.” There is also complementary income for generators in the form of clean energy certificates. According to Sussane Lehmann, Senior Director of Production at Volkswagen North America, without incentives, there would be no initiative for change. At Volkswagen, she said, achieving sustainability goals is a priority for the company, nonetheless. “At our Puebla plant in Mexico, we have a plan that will allow us to use only renewable sources of electricity in the medium term,” she said. A challenge, however, is to support the entire supply chain to meet the same goals. “We are still experimenting and finding out how the CO2 emissions we emit

are distributed over the entire lifecycle of a car. While some processes contribute with 13 percent of emissions, others only contribute 2 percent, for example. We are working with the entire supply chain, right down to logistic partners, to ensure that everyone meets their target. It has to be handled in a holistic way,” Lehmann said.

“We are still experimenting and finding out how the CO2 emissions we emit are distributed over the entire lifecycle of a car. While some processes contribute with 13 percent of emissions, others only contribute 2 percent, for example. We are working with the entire supply chain, right down to logistic partners, to ensure that everyone meets their target. It has to be handled in a holistic way ” Sussane Lehmann

Senior Director of Production at Volkswagen North America

According to Manuel Guevara, General Manager at Brose, 28 percent of all CO2 emissions come from vehicles, 27 percent from electricity generators and 22 percent from the manufacturing industry. The residential/ commercial sector accounts for 12 percent and agriculture for 10 percent of emissions. “If we, as

H ighlights companies, contribute to emissions in the areas of transport (automotive sector) and industry, we have a great responsibility toward ensuring sustainability,” he said. In recent years, Brose, a Tier 1 that currently works with companies such as Tesla, has focused on acquiring and developing smart technologies to achieve its sustainability goals. “We are focusing on automatic switches, lighting sensors and smarter power sources for our machines and production processes to save energy,” said Guevara. For Diego Blumenkron, Sales Director at electric power generation company Northland Power, there are standards that force companies to meet sustainability targets. However, “as energy companies, we cannot ignore national constraints,” he said. “The way we can help today is to take advantage of the boom that OEMs have generated to create more appetite for clean energy in the supply chain. Beyond

that, we have to try to offer energy as cheaply as possible.” According to Manuel Guevara, incentives in the country are not yet attractive enough to make the necessary changes toward clean energy use. “Brose is a company with 55 plants worldwide and we can appreciate the differences between each country,” he said. Guevera added that even though it is not mandatory in Mexico, the company already has the ISO 14001 certification and is in the process of achieving ISO 50001. “By 2025, we want Brose’s entire supply chain (including Tier 2s and 3s) to use clean energy,” he said. Kohlsdorf added that there is still a need for more information about the opportunities that the market offers today so companies and large consumers can take more advantage of the business potential that Mexico has to offer.

OPPORTUNITIES APLENT Y THROUGH SMART MANUFACTURING On Mar. 24, experienced panelists in the automotive manufacturing environment debated the latest trends in smart manufacturing in a panel moderated by Tarsicio Carreón , President of Chihuahua Automotive Cluster during Mexico Automotive Summit. Panelists agreed that technology had been a major contributor to keeping operations safe, sustainable and costeffective during the pandemic, but also outlined areas of opportunity and future trends to watch out for.

The pandemic and environmental challenges in the US complicated manufacturing heavily in recent times, according to Carreón. Panelists agreed on the many solutions that are already available in the area of smart manufacturing to keep operations safe and cost-effective during the pandemic and beyond. For Matt Myrand, Group Advanced Manufacturing and Supply Chain Manager at Faurecia, adopting these solutions requires testing. “If it works, we move it into our toolbox,” he said. It is also important that solutions can be stacked

H ighlights on top of older solutions. A long-term vision is therefore of the essence, said Myrand. To know which solutions are needed, Faurecia collects as much data as possible. As sales dropped in 2020, higher efficiency became crucial. Technology, such as augmented-reality solutions by using HoloLens glasses, helped to enable remote assistance, for instance, while saving time, increasing safety and decreasing travel costs. “Data is the new oil,” concurred Alejandro Preinfalk, President & CEO of Siemens Mexico. He mentioned that life in general was becoming more connected at an accelerated rate because of the pandemic. “But what do we do with the data?” he asked. For Siemens, digital twins of vehicles are the future. A digital model of a car, for instance, is useful for R&D, as well as for manufacturing. Afterward, the car can be connected to the cloud for data collection to schedule maintenance. “This creates value for all stakeholders,” he said. Marcio Delgado , Vice President of Production and Global Manufacturing at ZF, agrees that digital twins and data are increasingly crucial for resource optimization. “Given the importance of optimizing business results, our main contribution is optimizing resources and costs toward product optimization,” he said. ZF needed to rely more on agile tools to achieve this optimization. Other than digital twins, apps helped the company to enhance visibility of manufacturing data. Programmable logic controllers (PLCs) are becoming a common feature, as well. Furthermore, by gathering data from the global environment, other areas could also adopt best practices. Platforms to store and manage data will become more important over time, as will strategies to deal with cybersecurity risks. The only area more important than costs might be employee safety, especially during this new normality. “The new normal has impacted safety at manufacturing facilities. Automation is effective and keeps our employees safe in this environment,” said Manuel Sordo, Country Manager of Universal Robots. Manual labor is still as important as ever but social distancing needed to be introduced to global operations in the automotive sector. “Through collaborative robot automation and virtual reality, you can maintain productivity and the distance,” said Sordo. Installing a robotic arm next to a person has shown to be a boon to productivity, according to Sordo. “The interaction between automation

and manual labor has a huge impact,” he said, adding that maintaining an adequate pace is of the essence. Luckily, technological advancements are making the coding of this equipment easier and more accessible. Cost remains a key element in automation, nonetheless, argued Sordo. Investment in technology to bring down costs is key. Companies are working hard to adapt to these new conditions, as it is in their own best interest, he added, noting that more technologies are likely to be invented in the near future to further facilitate safe operations.

“Clusters are becoming the table where all possibilities are being analyzed and shared in the automotive industry. ” Tarsicio Carreon

President of Chihuahua Automotive Cluster

Regarding what further advancements would look like in the near future, Preinfalk points toward the importance of EVs. “Electrical vehicles are a trend that cannot be stopped,” he said. Innovation would therefore likely occur within vehicle production and e-charging infrastructure. 5G would represent a major opportunity for the automotive sector, stressed Preinfalk. Blockchain could also become useful to track key suppliers and components, he said. Other innovations to consider include fuelcell vehicles, as well as PLC and automation

H ighlights through AI. Myrand hopes that 3D printing can evolve past its current niche condition. “As speed and quality increase, the technology is getting there,” he said. Myrand highlighted the possibilities that 5G will bring to the table as new technologies are

embraced “Autonomous vehicle production requires very fast networks, so we will see an increased use of 5G, blockchain and digitalized factories,” he added. “Clusters are becoming the table where all possibilities are being analyzed and shared in the automotive industry,” concluded Carreón.

RULES OF ORIGIN CHANGE APPROACH TO REGIONAL CONTENT While they will certainly bring challenges, USMCA’s new rules of origin are also bringing opportunities to Mexico as OEMs and Tier 1s are forced to increase the percentage of regional content, which could translate into the development of more local suppliers. However, developing local suppliers can be a taxing process due to the numerous requirements and certifications necessary to produce for the automotive industry. In the panel “Suppliers Development in a New USMCA Era,” speakers representing clusters, financers and different levels of the supply chain addressed both the opportunities brought by the USMCA and challenges that the generation of local suppliers will represent. USMCA means a new chapter for Mexico’s automotive supply chain, agreed speakers at Mexico Automotive Summit on Wednesday, Mar. 24. “NAFTA did not provide strong incentives to local manufacturers. It promoted imports and led companies to bring suppliers from their native countries, such as Germany or China,” said Manuel Montoya, President of the National Automotive Clusters Network and CLAUT. For that reason, OEMs did not have the need to look for local suppliers. The new rules of origin for automotive goods demand an increase in regional content for core, principal and complementary parts for light and heavy vehicles. In the case of light vehicles, RVC has to increase to 75 percent in a three-year period, while for

“USMCA changed the rules and made them stricter. It is not just a 62.5 percent to 75 percent change; Tier 1s can no longer just import parts and assembly them locally. Now, the parts have to be manufactured in the region” Manuel Montoya

President of the National Clusters Network & CLAUT

heavy vehicles it will increase to 70 percent in a seven-year period. However, the changes go deeper. “USMCA changed the rules and made them stricter. It is not just a 62.5 percent to 75 percent change; Tier 1s can no longer just import parts and assembly them locally. Now, the parts have to be manufactured in the region,” said Montoya. This is forcing Tier 1s to look for local suppliers. “Rules of origin are changing how we look for regional content,” said Ricardo Coto, Purchasing Director of Metalsa, a Tier 1 company. But introducing a new supplier to the value chain is not a light decision. “The pandemic, the economic environment, the trade war and USMCA have made us reflect on how we look for businesses,” he added. The complex environment companies are facing is leading them to carefully evaluate not just the quality and capability of a supplier, but also its long-term financial stability. “It is important to identify which companies are vulnerable to crises and look for schemes to strengthen the supply chain through financing and partnerships,” said Coto. Small suppliers might need financial support through partnerships or loans to weather crises, agreed speakers. But getting a loan might not be entirely straightforward as financers are playing close attention to a company’s practices beyond their manufacturing operations. “Social responsibility is becoming increasingly important and companies that do not comply with these norms will have trouble getting financing from any bank,” said Diego Spannaus, Head of Trade and Receivables Finance, Mexico and Latin America at HSBC. Suppliers also have to innovate to remain competitive, especially in an industry where quality and short delivery times are key. “The automotive industry is extremely challenging not just in terms of quality and delivery times, but also prices,” said Felipe Villareal, CEO of

H ighlights Alian Plastics, a Tier 2 company. For that reason, suppliers at all Tiers have to invest in efficiency to truly stand out. “Better day-to-day operational risk management, driving innovation and building brand awareness are key to staying ahead in an industry like automotive,” said Villareal. However, the main challenge suppliers across the value chain might face lays in convincing the client that cheaper is not always better. “It is necessary to shift perception from reducing price to increasing value,” said Coto. As manufacturers race to find the lowest price, key quality principles might fall on the wayside, which will put lowquality producers in a poor position to compete.

“Competitive pricing without quality and short delivery times is no longer useful in the automotive industry,” added Coto. In that sense, innovation can be essential to keep quality up and costs down. “The first step to make a sustainable company is to contain costs through building brand value and implementing technologies such as Industry 4.0, which allows us to have decision-making information readily available,” said Villareal. Spannaus agreed and highlighted the importance of looking for added value at all points of the supply chain. “Cost is a consideration for all companies but only looking for the cheapest price is not the best option when looking for a supplier or a financer,” said Spannaus.

ELECTRIFICATION ADVANCES, CHALLENGES IN THE SUPPLY CHAIN OEMs have made electric vehicles a priority. Investments made 10 years ago are becoming a reality across Asian, European and North American brands. For these vehicles to further penetrate the Mexican market, not only charging infrastructure is very much needed but also the right government incentives to promote sustainable mobility, agreed panelists at Mexico Automotive Summit on Wednesday, Mar. 24. “OEMs in Mexico have played a central role in the development of the public charging infrastructure. Ninety percent of the investment has come from them in the last five years,” said Rodrigo Centineo, Founding Partner at E-Drive, a Mexican company focused on the

value chain of electric vehicle charging. In the government sector, Centineo said, the most representative effort has been CFE’s program for the development of around 100 charging stations through tenders. Toyota has been one of the leading players in the electric revolution for the past years. In his participation, Luis Lozano, President of Toyota Motor Mexico, said that the company has a broad approach to electrification. “We do not plan to move from point A to point B without going through other stages. We know that every country, society and customer will have different needs. That is why we will keep our offer open between hybrid, electric, fuel

H ighlights

cell or hydrogen,” he said. Following a similar approach, Elias Massri, CEO of Giant Motors, shared that the company has been developing and marketing electric last-mile vehicles for more than five years. “We can already know how many kilometers a truck travels per day, its exact charging times and how long its battery lasts. This gives huge advantages in terms of cost control regarding wear and tear on components,” he said. The company currently has more than 1,500 vehicles circulating in Mexico under this concept. In the public sector, said Ernesto Sánchez, Minister of Economic Development of Jalisco, states follow a different energy path. In Jalisco, for example, there is a state energy plan as part of the five economic development strategies of this administration. It features two areas of support for electric mobility and charging infrastructure: 1. Financing through state development banks for projects related to electric mobility and renewable energies 2. Direct, non-repayable grants for projects related to sustainable initiatives for SMEs As the fourth largest vehicle exporter in the world and the sixth-largest vehicle producer, Mexico will eventually adapt its manufacturing lines to electric and hybrid vehicles, said Luis Lozano. However, this transformation will bring great challenges and demands, not only

for businesses but also for governments and academic institutions. Comprehensive public policies, said Lozano, play a key role in this transformation. “Laws are needed to make it easier for global companies to establish electric vehicle production in Mexico. Actions are needed, not just words,” he noted. “After all, industrial plants cannot be fueled by dirty energy to build clean vehicles.” Mexico, Lozano added, is not competing against Brazil or Asia as most people think, but with the south of the US. “Public policies generate certainty so that investments are made in Mexico and not elsewhere.” “In Mexico, efforts will always be insufficient if they are isolated. There must be joint efforts between companies, society and government. The road to electrification is rough and challenging but we are advancing by leaps and bounds, globally,” said Edgar Estrada, Managing Director of Volkswagen Brand Mexico. Opportunities abound, according to Centineo. Mexico has been a pioneer in including the charger and its installation in the sale of electric vehicles, which has generated positive feedback from users. “There are also good practices globally that Mexico could take advantage of, such as standardizing charging protocols to make the infrastructure accessible to the majority of people,” he pointed out. Massri added that there is great room for improvement in the country to end the myths and concerns surrounding electric vehicles,

H ighlights with education being the main driver to start a change in mindset. One of the biggest fears when acquiring one of these vehicles, he explained, is that spare parts will not be available due to limited production. “JAC’s electric cars mirror our internal combustion models, however. When there is an accident, any one of our 40 dealers has the spare part our customer needs.” Another concern, Centineo added, is the fear of running out of charge in the middle of the road. This could be addressed by adding software to the charging centers so that all users have more

control, he said. “The owner of the charger can control and charge for its use, while operators like us can provide more optimal maintenance to the charging network.” To close the panel, Nazareth Black, CEO of Zacua and moderator of the panel, added that the company she leads has addressed users’ concerns by offering fully customized service, with a charging center installed at their home, maintenance and financing included. She also said that digital platforms have been a useful promotional tool for this type of vehicle among younger generations.

TAKING THE LEAP INTO DIGITAL SALES The pandemic accelerated the digitalization of the vehicle sales process. Little by little, dealerships were forced to adapt and reinvent themselves, becoming content creators, digital marketers and proactive salespeople. Industry leaders took note and helped dealerships to strengthen their online sales capabilities by engaging in solid partnerships with large e-commerce players. On Thursday, Mar. 25, Mexico Automotive Summit 2021 gathered leaders of the digitalization sales process to share their experience and challenges of today and tomorrow to reinvent digital sales in the industry. The panel titled “Taking the Leap Into Digital Sales, Experiences From Dealerships and E-Commerce,” contextualized the current industry reality a year into the COVID-19 pandemic, which was said to be the greatest challenge of our generation, according to Guillermo Rosales, Director General of AMDA and moderator of the panel. The industry experienced a 28 percent drop, which has been the most significant decrease since 2018, according to Rosales. “Last year, the industry sold 949,000 vehicles, which is half of what we sold during the industry’s highest selling year: 2016,” he said. Despite the crisis, Rosales observed how players of the automotive sector reinvented processes and quickly moved into e-commerce. But in a completely new scenario, what are the best practices for online sales? Fernando Enciso, CEO of Grupo Surman, was the first to address this subject by stressing that humans are the most important factor. “We

are the creators of all the data used in digital tools,” he said. Before a company can move to an e-commerce platform, however, people need to accept and pursue individual digitalization. Enciso explained that for Grupo Surman, “leads became the gateway when all showrooms closed because of the pandemic.” To move forward, the company worked on innovating its approach to keep a healthy business continuity even when doors where physically closed. Jorge Vallejo, President and CEO of Mitsubishi Motors, considers human resources an irreplaceable factor. That being said, there are issues to consider in moving toward digitalization. “There is a generational issue, even if we do not want to see it. There are many salespeople who are not going to professionalize and migrate to digital channels.” Vallejo observed that from Mitsubishi’s perspective, customers still want to see the car before buying it. “This is the heritage of many and they want to go see it and analyze the physical diagram in person, even if the

“There is a generational issue, even if we do not want to see it. There are many salespeople who are not going to professionalize and migrate to digital channels.” Vallejo observed that from Mitsubishi’s perspective, customers still want to see the car before buying it” Jorge Vallejo

President and CEO of Mitsubishi Motors

H ighlights company has a digital offering. We need to find a balanced approach.”

while integrating more dynamism with photos or videos.” This initiative led the company to work with AMDA, Google and GarantiPlus.

Carlos García, CEO of KAVAK, a company born digital, offered a different perspective. “For us, the path has been the opposite. There are consumers who are ready for this kind of approach but the niche is still very small. Our challenge has been to find the hybrid between digital and traditional.” García commented that one of the challenges in this process is educating the consumer to trust this new market channels and the sales team to work on an omnichannel strategy. “The automotive industry, once it matures, must be omnichannel,” said García.

Israel Escutia, Director General of GarantiPlus, addressed an additional challenge that comes after the sale. “Aftersales is always a fundamental pillar of profitability and customer satisfaction in the automotive industry.” For this reason, offering a guarantee is increasingly important. “We created an opportunity so clients are not limited by time or kilometers. GarantiPLUS goes beyond the traditional approach and integrates life insurance, mobility guarantees and road assistance,” Escutia said.

Jorge Dávila, Head of Vehicle Market Place of Mercado Libre, said sales processes needed to be innovated. “With the pandemic, the digital transformation pushed us to change and find ways to continue working.” According to Dávila, at the beginning of the outbreak, Mercado Libre began noticing a lack of knowledge and understanding of digital platforms from marketing strategists. To address this, the company created Universidad Mercado Libre to educate and train marketing and sales teams on digital sales strategies. “We introduced innovative learning processes like gamification with a digital process to motivate our salespeople to deliver quicker answers,

To conclude the panel, Rosales asked panelists about what will ensure profitability in an e-commerce market. For Encino, efficiency and warmth must be prioritized to engage with clients. For García, client experience will be key. “This will make us create understandable solutions that will eventually lead to a formal sales market,” he said. According to Dávila, profitability will come from improving the purchasing experience through the use of data analytics. However, Vallejo stressed all these ideas will be for naught if the industry does not approach and listen to the client. “If the industry does not evolve with the client, then efforts make no sense.”

DISRUPTION SPURS MOBILIT Y TRANSFORMATION The COVID-19 pandemic disrupted mobility to an unprecedented degree, fully changing

how people and businesses move and operate. Trends that were gradually penetrating the

H ighlights sector, such as electrification and data analytics, accelerated and are now even commonplace. In the panel “The Future of Shared Mobility vs Car Ownership,” speakers agreed that the sector is almost unrecognizable when compared to its pre-pandemic condition. Mobility companies have had to get creative regarding their product portfolio, while providing safer services for their users. “This year brought significant opportunities to innovate,” said Juan Andrés Panamá, CEO of Mexico and Argentina at DiDi, during Mexico Automotive Summit on Thursday, Mar. 25. The world changed during 2020. “In Latin America we thought that we had seen everything. We were wrong,” said Raymundo Cavazos, CEO of Volvo Car México. In its early days, the pandemic brought Mexico to a near standstill as many began to work from home, non-essential businesses closed and people started to avoid leaving their homes to buy food and other necessities out of fear of coming in contact with the virus. This meant a sharp reduction in mobility services. “Demand plummeted last year. In March and April, it fell by 50 percent,” said Panamá. Traffic, one of the main annoyances of daily commuters, was also down. However, traffic is gradually coming back as lockdowns ease and vaccination programs advance. “Although there is less traffic now, do not be fooled. Traffic will return,” said Anasofía Sánchez, Director General at Waze LATAM. She reports that in 2020, Waze saw an 80 percent mobility drop in Mexico City. However, it is slowly picking back up. “To this

date we have seen an 80 percent recovery in traffic from its lowest point and we estimate that we are still 20 percent below pre-pandemic levels,” she said. Moreover, lockdowns seen in December did not hit mobility as hard as those in March 2020, Sánchez added. While the world might slowly be going back to normal, the changes the pandemic brought are here to stay. One of these is the reevaluation of car ownership as consumers balance mobility as a service with an increased feeling of safety in their own vehicle. Traditionally, Mexican culture has favored car ownership. “We are one of the countries with less financial incentives for buying new cars but there is significant interest from the general public in acquiring one,” said Sanchez. Before the pandemic, however, mobility apps led younger generations to question whether they truly needed a car of their own. “Ownership relevance is changing as Mexicans are now realizing they just need the service,” argued Cavazos. However, car ownership came into the spotlight again as users of public transportation or mobility apps questioned the safety of those services. “Cars are taking a new role during the pandemic as they give an unrivaled sense of security against other mobility options,” said Sánchez. Consumer preferences are changing especially regarding public transportation. “We are seeing a migration to our service from those who used public transport but are now looking for a safer choice,” said Panamá. However, public transportation still plays an essential role in the lives of a significant percentage of Mexicans.

H ighlights Even those who use mobility apps incorporate public transportation into their daily commutes. “Clients are using our services as a way to connect with public transport and not always a replacement. About 8 percent of our trips in Mexico City have a connection with a means of public transportation. About 2 percent of those trips end or begin with public transport, especially in the outskirts of Mexico City,” said Panamá. While public transportation can make some nervous amid the pandemic, “governments are also looking for ways to make public transport safer,” said Sánchez. One strategy has been the use of data analytics, which can help to identify traffic peaks and address them. “We have

“Before the pandemic we had food delivery services in three cities. Now, DiDi Food is present in 40 cities as people no longer want to go to restaurants”

centers that allow users to contact them instantly if they do not feel safe,” added Panamá. As a large number of individuals stayed home, delivery services boomed, as well. This has forced companies of all sizes to adapt. From small restaurants to multinational chains, companies have had to embrace fast-changing consumer preferences. “The main winner during this period was not e-commerce but omnichannel sales,” said Sánchez. “Delivery has also grown significantly. From our platform we have seen an enormous increase in online purchases and drive-thru pickups. In other countries we are even observing that stores are renovating to facilitate this practice.” While some prefer to pick their items at a store, many also prefer to have them delivered, argued Panamá. “Before the pandemic we had food delivery services in three cities. Now, DiDi Food is present in 40 cities as people no longer want to go to restaurants.”

Juan Andrés Panamá

CEO of Mexico and Argentina at DiDi

significant mobility data that we can aggregate and share with governments to help them make mobility decisions,” said Panamá. DiDi has worked with the governments of Guadalajara and Puebla to help reduce traffic and improve mobility across cities. Technology can also help prevent crimes. “In the State of Mexico, our platform is connected with C4 and C5 security

Altogether, the pandemic fully changed mobility in cities. As consumers change, mobility providers are forced to change alongside them. “We have to evolve as the sector needs to change,” said Cavazos. Flexibility and a successful strategy can be the difference between survival and growth. But as the sector moves forwards, it has to keep the needs of clients at the forefront. “Staying healthy and safe is the main priority for our clients. Digitalization is facilitating new ways to help in this regard,” said Panamá.

MAZDA: DEFINING TRENDS TOWARD COMMERCIAL SUCCESS The pandemic forced the automotive sector to redefine how brands do business. Mazda was one of the companies in the industry that showed how to deal with a crisis, while still putting the customer at the center of its corporate strategy. “In the last 12 months, consumer trends have changed for the better. The world is experiencing a renaissance that brings great opportunities. Even though there is still a long way to go, we have all rethought personal, health, financial and work goals and, above all, our spiritual needs,” said Miguel Barbeyto, President of Mazda, during his presentation at Mexico Automotive Summit 2021 on Thursday, Mar. 25. Most people, Barbeyto added, have new and more real values. “Living for the material has

become a negative trait. Today we need to communicate in different ways; people want to socialize again. What I miss most is not going to the office but socializing and talking to people,” he said. Among the new habits that are here to stay, Mazda’s CEO said that remote and co-working schemes will become part of people’s daily lives. “We had to realize the hard way that what we were used to doing before the pandemic was no good at all.” Distance education will suffer the same fate, Barbeyto added. “Education will no longer be the way it was. Even if we go back to a face-to-face format, there will be people who prefer to continue learning at a distance and we have to adapt.”

H ighlights After more than a year with no concerts and not being able to experience going to the cinema as before, Barbeyto said people have taken refuge in outdoor activities. “More and more people are exercising outdoors. We are not used to being locked up.” However, this situation has been an opportunity for companies to rethink the way they do business. “All companies have had to develop new strategies to better meet the needs of consumers in the city.” All these changes, although they may not seem like it, directly affect Mazda, Barbeyto said. “We do not see our competition as just the OEMs but any other business or sector, whether it is a school, a restaurant or an entertainment venue. At the end of the day, the consumer is adopting new ways of consuming and we have more competition because they only have one salary to cover all their needs, whether basic or recreational. We have to know how to differentiate ourselves.” For Mazda, one of the biggest challenges at the start of the pandemic was understanding what distributors , Mazda Corporation , employees and customers wanted. “Achieving a perfect balance between these players was tremendously challenging but also rewarding,” Barbeyto said in an interview with MBN back in February. Today, the brand is clear that immediacy, customer service and logistics are key to standing out in an increasingly competed and digitized market. “Now, more than ever, in a digital world, the certainty that we give to customers is fundamental. We have to give them the confidence that what they are buying will arrive on time and in good quality. Sometimes, we create strategies

thinking about what the company wants. But no, everything has to be linked to what the client is looking for,” Barbeyto pointed out. This strategy, coupled with the brand’s charm, allowed Mazda to close 2020 with a market share of 4.9 percent. “We want to close 2021 with the same percentage. We do not want to focus on winning new customers but to keep the ones we have,” Barbeyto said. Among the opportunities and trends, the brand sees sustainability and automation. Currently, at Mazda’s Salamanca plant, 40 percent of the processes are automated. However, Barbeyto is confident that the human touch cannot be replaced. “When the vehicle is finished, female workers check that the product is in perfect quality conditions. That cannot be done by a machine, yet.” In terms of recovery, there is still a long way to go, says Barbeyto. “Recovery will be rather slow. We are forecasting that it will take us until 2024 to reach the industry levels of 2019. There is no macroeconomic indicator that suggests otherwise. There are activities like production and exports that are responding much better. To boost recovery, the economic base would have to be much stronger. There should be more support for entrepreneurs and SMEs,” he told MBN.

“Achieving a perfect balance between these players was tremendously challenging but also rewarding” Miguel Barbeyto President of Mazda

5G: PILLAR FOR AUTONOMOUS SOLUTIONS Synergies between tech companies, chip manufacturers and technology innovators can forever change the way we understand vehicles, how they move and how they react, taking connectivity to a whole new plain. Luz Elena Jurado, CEO of Volvo Trucks, and Ricardo Anaya, Staff Product Manager of Qualcomm Mexico, addressed developments in connectivity during the panel, “Connectivity, 5G and Autonomous Vehicles,” moderated by Alejandro Enríquez, Senior Industry Analyst and Journalist at Mexico Business News.

“5G is the next generation of telecommunications. It has three main characteristics: an enhanced mobile broadband, critical mission services and massive IoT capabilities,” stated Anaya during Mexico Automotive Summit on Thursday, Mar. 25. He highlighted the benefits of 5G, through which users can experience an incredibly fast download speed of 20 gigabits and an upload speed of 20 gigabits, as well. When it comes to a vehicle, it is all a matter of speed. “Data in a vehicle is very relevant. Systems require latencies of less than 3ms for a vehicle’s sensors

H ighlights to detect if the shape that they detect around them is a tree, a pole or a person,” Anaya detailed. The next generation of vehicles needs fast connectivity to deliver even better solutions, something the automotive industry has to take advantage of. Connectivity, a very popular word throughout the pandemic, was the focal point of Jurado’s remarks, who said the visionary efforts Volvo Group made for the development of autonomous solutions, which already exist in Europe and North America. “Volvo Group has over 1 million machines connected all over the world.” She mentioned two technological solutions the company has started implementing: Remote Programming and Remote Diagnostics. The latter allows clients and distributors to optimize many processes regarding the state of the vehicle and how it can be fixed. “Connectivity reduces operating costs through the optimization of processes and diagnoses that can prevent future problems,” Jurado added. Connectivity, in this sense, allows faster information sharing, so repairmen know what is wrong with the vehicle before it reaches the shop. “Clients and fleet managers may arrive to an appointment and have all their car parts ready to fix a truck in less than 2hrs.” Volvo also promotes the use of remote programming, so a driver can update a vehicle’s software based on the task at hand. “This allows us to prevent any accidents, reducing traffic which is something positive for everyone,” said Jurado. Autonomous solutions are a priority

for Volvo Group and the goal is for these alternatives to be less polluting, according to Jurado. She gives the example of Vera, an already operational self-driving truck that is 100 percent autonomous and electric. The truck is completely driverless and it can connect to other trucks nearby. It can provide information on its battery charge and also how long it will take it to get to its final destination. “It is no longer necessary to have a driver for short distances,” said Jurado. “We are living through a transformation that is necessary to keep moving and keep business and industries alive. In the past 10 years, vehicles have changed more than they did in the previous 100 years,” said Anaya. He also introduced the concept of Cellular Vehicle to Everything (C-V2X), which is a protocol created for vehicles to communicate with each other but also with cyclists, people and road infrastructure. “Connectivity is essential for vehicles to be able to make decisions,” said Anaya. This type of technology allows for a vehicle to know what is happening around it, if there is a truck nearby, if there was some sort of error or if a bridge did not lower and it cannot cross. “This is the importance of connectivity; this is the future of the vehicle, the future of smart cities and even of ports and factories,” he added.

Connectivity Infrastructure Vehicle connectivity demands 5G, said Jurado. “It has a broader bandwidth, it gives data at a

H ighlights

faster rate. It allows more data to be available for processing.” It is essential for the entire ecosystem then, to be able to work with 5G technology. However, Jurado mentions some obstacles. “There are great challenges: integration, synergy and association with the government are vital to have access to this 5G connection,” she said.

terms of technology. “If we do not work on this, 2030 will catch up to us.” She talked about how there are already many electric trucks being used by big companies like DHL or Estafeta and how Mexico does not have the infrastructure to run them. “In 2030, there will be a world full of autonomous solutions. We need to prepare for this now,” she said.

Jurado gives the example of a streetlight, which is owned by the state, unlike other vehicles that might belong to a person or a company and that can be more prepared in terms of communication technology. “There is a huge synergy challenge between the private initiative and the government,” she said. Both Anaya and Jurado agreed on how important this synergy is for the establishment of the necessary regulation. “We need to think about the rules at play, which are extremely important for the regulation of vehicle autonomy,” argued Jurado.

5G has the capacity to replace all existing networks, according to Anaya. “We need to follow global trends; it is not about reinventing the wheel. It is not a matter of maybe yes or maybe not, but a matter of when,” he added. Making the transition to 5G is not only vital for connectivity. Anaya argues it also vital for safety and the environment, which he believes could even reduce carbon emissions. Jurado urged other truck companies to take advantage of current technologies and even encouraged them to promote them among other manufacturers. In a world that is evermore connected, the creation of the proper infrastructure is not a recommendation but the path to take, the panelists concluded.

Jurado spoke with a sense of urgency when talking about how Mexico needs to adapt in

M E X I C O , N O R T H A M E R I C A : K E Y D E S T I N AT I O N S F O R A S I A N INVESTMENT COVID-19 exposed the fragility of global supply chains. OEMs have reevaluated the benefits of having most suppliers closer to

where production operations are, while Tier 1s evaluate all the necessary measures to avoid supply disruptions, including relocating

H ighlights operations to a specific region. Nearshoring, the buzzword for regionalization trends, implies relocating production closer to where large consumer markets are. With USMCA’s new rules of origin for automotive goods in place, there is no better timing for foreign companies to transfer operations to North America. All these subjects were discussed during the panel, “From Global to Local: Promising Destinations for Asian Investments In Mexico and North America,” at Mexico Automotive Summit 2021 on Thursday, Mar. 25.

center where Mexican talent can participate with automotive OEMs.

Alfredo Arzola, Director General of CLAUGTO and moderator for this panel, asked Lizette Gracida, Director of Government Affairs at Toyota Motor Mexico, about the potential of the North American Region to build sustainable supply chains. “The potential of this region is such that North America is paramount for Toyota,” Gracida explained. She highlighted that Toyota’s investment in this region is of over US$35 billion, creating 48,000 jobs between the US, Mexico and Canada.

To further expose the benefits of the local industry and its attractiveness for the Asian market, Eduardo Saénz, CEO of BAIC, shared the innovative model that BAIC works with. “Our model is called Motor Nation. This Chilean model is based on adapting to the needs of the market.” Saénz said the model consist of having different brands represented by the same company. This way, BAIC can have a diverse portfolio and meet the needs of the market. “Additionally, this allows us to have an independent distribution network,” he said.

Toyota has a distribution network of 1,800 dealers to reach all consumers. Its operations in Mexico, which date 18 years, were strengthened with the manufacturing of the Tacoma pickup which began in 2019. “Our manufacturing capacity in Mexico is of 138,000 units per year and this would not have been possible without the support of federal and state governments,” Gracida commented. She explained that corporate success demands long-term industrial public policies at a federal or State government, as they give certainty. Geographic location is also a plus for a successful manufacturing operation. Lastly Gracida said that a solid supplier base, like the one in the Bajio Region, is very beneficial for “just-in-time” processes similar to the ones Toyota has. Lourdes Cobos, COO of Yanfeng, shared the benefits the company sees in Mexico and the North American Region. “We currently have five plants in the country and are on our way to open a sixth one,” Cobos said. She highlights the importance of Mexico’s geographic location and of labor availability. However, she says the latter has been mislabeled. “Mexican labor is considered attractive because it is cheaper. However the talent and expertise of the local talent in technology and innovation is what makes the Mexican workforce so valuable.” Cobos shared that Yanfeng is creating a design

Cobos shared that Yangfeng in Mexico doubled its manufacturing capacity in the last three years following trade conflicts between the US and China. “Mexico was key to ensuring profitability and efficiency in our operation. Initially, our expansion targeted North America but in Mexico, we found facilities to export and opportunity to develop local suppliers, which ensures competitiveness.”

Saénz explained that for BAIC, results show the competitiveness of the North American region. “In 2020, the Chinese industry produced 27 million units despite the pandemic, while North America produced 20-21 million vehicles, making it the second largest producer.” To date, BAIC works with three Chinese brands in Mexico. The company is close to adding two more companies, creating around 700 direct and indirect job. But what has made this location successful in the automotive industry? Michele Porrino, Director General of WTC Industrial, broke down the main benefits: • A well-connected location, with efficient highways and airports, railways and ports. • Access to utilities that do not require much investment, including natural gas and water • A trained, talented and adaptable workforce • Incentives, which might vary from state to state and city to city Porrino explained that USMCA has played a significant role as it allowed supply chain consolidation and boosted competitiveness.

H ighlights However, something innovative about this agreement is its focus on nearshoring. “Redistributing manufacturing capacity is the only good thing that COVID-19 left to our supply chains,” she said. Porrino also exposed the benefits of companies belonging to an industrial park versus those landing on a green field. “Industrial parks have more amenities or services and even a special offering for the industry, such as the strategic fiscal area in San Luis, which Amazon has found very useful,” she added. Manuel Fernández, Director of International Promotion at SEDECO Guanajuato, provided a public sector point of view to the discussion. “Certainty is the No. 1 thing Guanajuato offers to the industry. We are aware that the automotive industry is the backbone of Mexico’s economy and its economic recovery.” Fernandéz said that in Guanajuato, the government honors its commitments and promotes competitiveness,

giving solutions and becoming an ally and a partner to investors. “We are the main exporter behind Coahuila and we are convinced that we must continue investing in this industry, which has not failed us.” Fernández also said that while USMCA gives certainty, the agreement should have pursued the development of a regional supply chain, like Europe and Asia have done. He said that Guanajuato is open and seeking to receive more investment, as it has been doing for years. “Asian investment is more than welcome in Mexico. There are already many Chinese, Japanese and Korean automotive companies in the country.” Arzola concluded the panel reflecting on the need to balance globalization with regionalization. “The goal is to benefit the country, the economy and therefore society. We are in a process of economic and social maturation and transformation, but there are variables to consider.”

H U M A N C A P I TA L M A N AG E M E N T A N D C H A L L E N G E S O F N E W LABOR STANDARDS USMCA brought tougher rules of origin for automotive goods. Conciliation and effective union representation under USMCA’s Chapter 23 are now the new normal. At the same time, the pandemic forced the industry to rethink how it managed its workforce, bringing challenges but also great opportunities for companies, agreed panelists at the Mexico Automotive Summit 2021 on Mar. 25. “The changes in the new treaty are aimed at a concept that for most companies in Mexico is difficult. However, for those that have already experienced a trade union environment, it is easier: the democratization of labor relations,” said Luis Monsalvo, Founding Partner at Monsalvo Duclaud, a law firm specialized in labor, employment and social security. Ac c o r d i n g to M o n s a l vo , t h e c u r r e n t administration in Mexico has understood this concept quite well. However, the change began with the previous government. Although reforms to the Federal Labour Law, focusing on union representation, collective bargaining and the labor justice system, came into effect in May 2019. “It was all the result of a constitutional reform pushed by Enrique

Peña Nieto,” he noted. “This reform was one of the requirements to access the Trans-Pacific Partnership (TPP). We were going to deal with the US and Asian countries and we knew we had areas of opportunity in this regard.” These changes, Monsalvo added, are positive but also bring challenges. “This will force us to respect the labor rights demanded by organizations, such as the UN. In addition, USMCA has a verification mechanism and the US can demand that we comply with what we committed to.” In addition, he mentioned, the pending outsourcing reform will also bring major challenges. Faced with these changes, companies like Daimler have had to rethink the way they manage human capital. “Our main resource is always human capital. We have handled these changes gradually. During the pandemic, we have reacted in different ways and we are not the only ones who have faced this,” said Marcela Barreiro, HR Director at Daimler. She said the company currently has around 8,000 employees spread across the country and each of them has a union representing them. “This union has helped us to think of ourselves as

H ighlights a team. We each have different roles but our relationship is not just as business partners but as a family. We have a close relationship, we listen to each other’s perspectives and we always find a solution. This has made us grow and understand each other’s needs.” Accordingly, Evelyn Gonzalez, Sales Director of Lavartex, said her company has union delegates at each of its plants, with whom they organize quarterly meetings to establish strategies. “As a supplier to the automotive industry, by having this system in place and complying with these regulations, we are one step ahead in being able to offer certainty to our customers.” At S c a n i a , a Swe d i s h co m p a ny th a t manufactures heavy trucks and buses, the transition has been smooth, said Maite Delgadillo, HR Director of SCANIA. “The practices required by the new treaty were already in place and we do not have anyone outsourced.” Delgadillo pointed out that one of the characteristics that has allowed the company to move forward is flexibility, agility and change management. “These are success factors for any organization. Companies facing radical change without these qualities are unlikely to survive,” she said. Mental health has also been a concern for companies during these months. “When we started to notice that the pandemic was going

to last longer than expected, the first thing we asked ourselves was what was happening to the emotional health of our employees,” said Barreiro. Among the actions Daimler implemented, she said, were forums to communicate directly with everyone in the company so they could feel heard despite the distance. The company also launched online yoga and meditation courses and other activities to take care of employees’ mental state. Meanwhile, Scania focused on more flexible working arrangements . “ People in the company have their objectives. They can log in and out whenever they want; we only ask them to deliver results,” said Delgadillo. In addition, the company provided training to all their leaders, as it is not the same to lead from behind a screen. She added that the most dangerous thing for an organization is the people who resign but do not leave, referring to people who are no longer committed to the company. Having happy co-workers at companies, according to Luis Monsalvo, also reflects in the legal environment. “All practices in a company at the end of the day have a human resources focus. If a group of employees is healthy and happy, it will be easier to dialogue with them and therefore it will be easier to legitimate the collective labor contract required by the new treaty,” he pointed out.

H ighlights TRANSFORMING ADVERSITY INTO OPPORTUNIT Y: HYUNDAI Good leadership in times of crisis is what allows companies to make the most out of difficult situations. Claudia Márquez, President and CEO of Hyundai Motors Mexico, recognized by Automotive News as one of the 100 Leading Women in North America’s automotive industry, has worked in the automotive industry for 25 years. During her presentation titled “How the Pandemic Transformed a Conservative Management Industry Into an AdaptabilityOriented One,” she discussed the ways in which Hyundai adapted in the midst of a harsh pandemic. “The industry suffered a 28 percent loss,” Márquez stated on Thursday, March 25 at Mexico Automotive Summit. She recounted the negative effects of the COVID-19 pandemic and said that “if the Mexican economy were to recover by 3.6 percent in 2021, domestic light vehicle sales would be expected to grow by 11.2 percent to around 1.05 million units.” These levels are similar to what the industry reported in 2013.

What Did Hyundai Do to Overcome the Pandemic? Márquez mentioned that to Hyundai Motors, people are always first, so the focus was on finding ways to take care of the well-

being of employees, distributors, clients and communities. She mentions how the company wanted employees to feel calm during the pandemic, to find ways for them to keep operating while keeping everyone safe. “The team was very happy that we were able to adapt to this new, unprecedented reality. After realizing how things were going, we looked for ways in which we could support communities. Our intention was to support communities through a social media campaign,” she shared. Hyundai created a social media campaign in Mexico called #YoCedo, which was a way for people to collaborate and help COVID-19 patients, as well as hospital staff after long working hours. Hyundai wanted to transform diversity into opportunities. One of the main ways the company has looked to make contact with customers was via digital platforms, to not compromise the health and well-being of clients. The company also created ways for customers to make pre-purchases online so they feel safer during the car purchasing process. Another solution was the creation of a pickup-and-delivery service to eliminate any form of anxiety stemming from potential risks. “We have reduced the time of all processes. We went through the digitalization of all processes but it is something we were able to

H ighlights do well. We wanted to streamline procedures,” Márquez said. The company also had to adjust to new working methods. “There is fear and nervousness when it comes to new ways of living and working. We have reconditioned the home office so workers can operate in the best way possible. People may be home but we cannot stop thinking about their emotional well-being,” Claudia Márquez assured. The company also reconditioned its offices to be ready for when it is possible to come back.

“Younger generations have changed their purchasing preferences when it comes to the acquisition of a personal vehicle. When my parents were younger and even when I was younger, the second most important purchase after an apartment or a house was a vehicle. Young people nowadays do not want to buy a vehicle,” Márquez shared. There are whole new structures and young people would rather take advantage of something that generates less commitment, such as the option to rent a car instead of buying it.

What to Expect in the Future?

She also mentions how important hybrid and electric vehicles have become globally. At Hyundai, there is a commitment to design and offer better quality vehicles through a wide range of options. “The expectation for 2025 is to reach the 1-millionth-vehicle milestone in terms of sales.” Hyundai already has an electric model called IONIQ, which is already being sold in other countries. In Mexico, however, she mentioned that the strategy is to analyze when the right moment comes to sell electric vehicles in the country, mostly due to the lack of infrastructure in many parts of the country. She also mentioned that electric vehicles tend to have much higher production costs, which leads to a much higher price, although she understands why these options are demanded and valued by people so much nowadays.

Márquez talked about the trends seen in the last few years in different markets. The COVID-19 pandemic has altered the way people move, creating new mobility channels that are safer and guarantee proper social distancing. Patterns in consumption are also changing, she points out, particularly among young people.

The company has also worked on the release of newer models. She gives the example of Tucson, a model the company released almost four weeks ago. “We want to focus on the specific models that our clients are looking for. We want to increase sales to compensate for last year’s sharp decline,” she said.

“The human part is something that cannot be left out. The crisis brought out this sense of warmth and human value. We go back to the most basic things: health, feeling and wellbeing,” she said. Márquez also applauded the way people are working today in the company, considering it something positive that stemmed from the health crisis. She also explained that Hyundai has looked for ways to work in a more agile and dynamic team environment, which is more enjoyable and creates better adaptability and resilience within the company. “Despite the pandemic, we are more vital, strong, agile, digital and human.”

MEXICO’S ECONOMIC RECOVERY STILL UNCERTAIN The automotive industry is considered a pillar for Mexico’s economic recovery. However, there are some factors to consider regarding how this recovery will unfold. During the closing presentation of Mexico Automotive Summit 2021 on Thursday, Mar. 25, Alejandro Valerio, Associate Practice Leader Mexico and Central America at FrontierView, talked about how the automotive industry will be the winner in Mexico’s economic recovery, detailing the key variables to consider in the short and medium term.

The first key driver involves the reoccurrence, length and stringency of social distancing measures and restrictions in the country. According to Valerio, Mexico has become the worst-hit country by the pandemic in Latin America. Mexico’s economic reopening is linked to the states’ progress in the trafficlight system of COVID-19 contagion. To date, 50 percent of the map is in yellow after being in red during the first two months of the year. Coupled with this uncertainty, the Mexican peso faces another threat stemming from López

H ighlights Obrador’s energy reform and his warning on Banxico’s independence.

the automotive and agriculture industries will continue to power exports during 2021.

Valerio explained that peso’s stability has a high risk of faulting, as negative factors weighing it down far exceed those keeping it safe. Among the negative contributors are also PEMEX’s dire financial situation, the US tight monetary policy, Mexico’s credit rating downgrade and COVID-19’s effects on the economy. “Mexico’s economic outcome in 2021 will depend on how the government handles the pandemic and how the US economy fares,” said Valerio.

So far, local vehicle consumption in Mexico has slowed down after recovering in 3Q20, according to Valerio. “Auto sales in Mexico are showing divergence according to income segments and we are seeing that Mexico’s inequality gaps are growing.”

Vaccination plays a significant role in the recovery process, making it the second key economic driver. In the best scenario, which is the one portrayed by global governments, by 2022 we will reach complete mass vaccination in China, Europe ad the US. Herd immunity will be reached and export revenues will begin to recover. In this scenario, pre-pandemic levels will not be reached until 2021 but the recovery will be significantly higher than in 2020. According to FrontierView’s studies, this scenario is 10 percent likely to occur. Considering the vaccination programs to date, Mexico has vaccinated around 4.6 percent of its population, so it is unlikely the country will reach a blooming economic development before the end of 2021.

To conclude, Valerio highlighted the main events to watch out in 2021 that can hinder or benefit economic recovery in the country:

1Q21: • Status of legal challenges to the new electricity reform • Vaccination progress • Banxico’s monetary policy announcement

2Q21 • Midterm elections • 1Q21 GDP estimations • Assessment of infrastructure

Government stimuli make up the third economic driver. According to Valerio, López Obrador might need to recalibrate its policy agenda to conform with Biden’s new priorities, especially regarding renewable energy. Private investment recovery prospects are the fourth driver. FrontierView foresees a K-shaped recovery at the industry level. According to Valerio, the agriculture sector was the most resilient in 2Q20 while the manufacturing industry bounced back in 3Q20. The last key river is external demand and competitiveness regarding Mexican exports. This also considers USMCA’s impact, which is expected to change the market in the mid to long-term with the introduction of digital trade, new rules of origin, labor-related disputes, wage increases and environmental disputes. USMCA will also strengthen Mexico’s manufacturing states and some key industries, including the automotive industry, as it positioned itself in fifth place in terms of exports between 2007 and 2019. As a result of US demand,

3Q21: • 1H21 GDP assessment in the US • 1H21 government revenue in Mexico • Banxico’s monetary policy announcement • Appointments at Chamber of Deputies • Debate over 2022 budget

4Q21: • Vaccination progress • Trade balance results with the US • Approval of 2022 budget

www.mexicobusiness.com.mx www.mexicobusiness.news www.mexicobusinesspublishing.com www.mexicobusinessevents.com www.mexicobusinesscommunication.com www.thehiddenkitchen.mx

CONTACT

Naomi León nl@mexicobusinesspublishing.com (+52) 55 2909 8013