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Mexico’s automotive industry is showing impressive resilience and adaptability amid a challenging global market caused by the after effects of the COVID-19 pandemic and global conflicts. The country has become one of the most attractive destinations for investors and automakers that seek to relocate their operation closer to the North American market. However, the industry is under increasing pressure to adopt digitization and electrification, as both customers and automakers demand more competitiveness while also addressing sustainability concerns.
Despite the challenges, Mexico is well-positioned to support the industry’s transition towards electromobility thanks to its privileged location and global integration, achieved thanks to the country’s 14 free trade agreements. Mexico also has a skilled workforce and a growing engineering talent pool.
As it works to increase its competitiveness, the industry is pushing to achieve the necessary regulations and incentives to increase the adoption of electromobility. This trend is poised to address the sustainability concerns of automakers, regulators and clients. However, the sector faces significant challenges to increase the use of EVs, such as the lack of charging infrastructure and incentives. Mexico also lacks clear sustainability guidelines to become an electromobility powerhouse.
Industry leaders gathered at the Mexico Automotive Summit 2023 to discuss the most important and relevant subjects the country has to face to fulfill its potential as a manufacturing and R&D power in the global automotive sector. At the event, experts shared their insights on the future of mobility, the state of Mexico’s automotive industry, USMCA, procurement strategies, trends in vehicle sales and the most critical innovations in manufacturing technology.
115 companies 211 conference participants
38 speakers
142 in-person attendance
7 sponsors
3,350 visitors to the conference website
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151 participants
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• Abitat Construction Solutions
• Aceway
• Advantage Austria
• AMDA
• Asociación Mexicana de Distribuidores KIA, A.C.
• Audi México
• Austrade Embajada de Australia
• Autocluster Chihuahua
• AWL
• BBVA MEXICO
• Bocar Group
• Borgwarner
• Bosch Mexico
• Boston consulting Group
• Bridgestone de México
• Camara Española de Comercio
• CGR DE MEXICO
• CGR International
• CIT Sinaloa
• CLAUT
• Cluster Automotriz de Nuevo León, A.C.
• Clúster Automotriz Zona Centro
• Consultamos
• Continental Automotive
• Dachser de Mexico
• DAMETIS
• Delegación de Euskadi en México
• Deloitte
• Dupont
• E-Drive
• Embajada de CanadáGobierno de Ontario
• Embajada de la República Checa
• Embajada de Suecia
• Embajada del Japon
• Embassy of Israel
• Energía y Economía Consultores sc
• Engie
• Estafeta
• ETO GRU ppE
• EVERGO
• Evonik industries de México
• fedEx México
• fleet Management México
• forefront power
• frost & Sullivan
• GALNIK, S.A. DE C.V.
• GarantipLUS
• General Motors
• GERMAN EMBASSy
• Giant Motors, JAC
• GMD Stamping
• Gobierno de Quintana Roo
• Government of Sinaloa
• Grupo Surman
• IfS
• INA
• Imagina projects, SA de CV
• Instituto Mexicano del Transporte
• J.D. power
• Kayser Automotive
• Kern Liebers
• KIA México
• Kiewit
• Kotra
• KpMG México
• Logicalis
• LONGi
• MAGNA
• MAECI
• Megaflux
• MexicoView
• Ministry of Economy of the State Government of Nuevo Leon
• Ministry of Economy of the State of puebla
• Mitsui Co. Ltd
• Multiplica
• Nissan Mexicana
• NISSIN MANU fACTURA DE MEXICO
• pirelli
• pOWER ELECTRONICS
• pROMINOX
• proterra
• REDCAM
• RER Energy Group
• ROMESA BUSINESS AND TRADING SOLUTIONS
• Sanok Rubber MX
• SAp
• Schaeffler Mexico
• SCHERDEL
• Secretaria de Desarrollo Económico
• Secretaría de Economía del Estado de puebla
• Senoplast
• SEV
• Siemens
• State of Zacatecas
• Stellantis
• Swiss Business Hub
• TECHEMET SA DE CV
• Técnica Test / CEAT
• Tecnológico de Monterrey
• Telcel
• Tenneco
• Terra Regia
• TKonsult
• Traffilog
• Uber
• Uber for Business
• Ultatek
• U.S. Commercial Service
• USG MEXICO SA DE CV
• Valiot
• Volkswagen
• Wieland
• XpO Logistics
• Zacua México
• Zf group
MARCH 15TH , 2023
08:55 WELCOME TO MEXICO AUTOMOTIVE SUMMIT 2023
09:00
MEXICO’S AUTOMOTIVE INDUSTRY OUTLOOK: BRIGHT SPOT IN A CHALLENGING GLOBAL MARKET
Moderator: Francisco González, INA
Panelists: Rodrigo Centeno, Nissan Mexicana
Gerardo Gómez, J.D. power
Alberto Torrijos, Deloitte
09:45
USMCA, LABOR AND COMPETITIVENESS OF THE MEXICAN AUTOMOTIVE INDUSTRY
Moderator: Elisa Crespo, CLAUTEDOMEX
Panelists: Fausto López, Volkswagen México
Karen Lellouche Tordjman, BCG
Thomas Karig, Independent Consultant
10:30
11:30
NETWORKING COFFEE BREAK
CRITICAL RAW MATERIALS FOR TOMORROW’S LIGHT VEHICLES
Moderator: Renato Villaseñor, Queretaro Automotive Cluster / GALNIK
Panelists: Martín Toscano, Evonik
Markus Schueler, Wieland
Ramón Mariscal, Dupont
12:30
PROCUREMENT STRATEGIES IN AN INDUSTRY UNDER CONSTANT TRANSFORMATION
Moderator: Manuel Montoya, CLAUT
Panelists: Manuel Tamayo, Element fleet Management México
Miguel Saldamando, CEAT
Mónica García, General Motors
13:30
15:00
NETWORKING LUNCH
OEM CAPTIVE FINANCE COMPANIES’ IMPACT ON THE VEHICLE INSURANCE MARKET
Moderator: Guillermo Rosales, AMDA
Panelists: Jaime Pedraza, GarantipLUS Mexico
Fernando Ardura, Traffilog
Víctor Rojas, BBVA
15:45
BEYOND BORDERS: MEXICO’S AUTOMOTIVE INDUSTRY’S GLOBAL IMPACT
Speaker: Guillermo Rosales, AMDA
16:00
NETWORKING COCKTAIL
MARCH 16TH , 2023
08:55 WELCOME TO MEXICO AUTOMOTIVE SUMMIT 2023
09:00 INNOVATION ON WHEELS: MEXICO’S ROAD FROM MANUFACTURING TO MINDFACTURING
Speaker: Gonzálo Rodríguez, pirelli Mexico
09:30
MEXICO’S EV MANUFACTURING BREAKTHROUGH
Moderator: Juan Cerdeira, SEV
Panelists: Jorge Vázquez, Zf Group
Isidoro Massri, Giant Motors, JAC
Stefan Plotz, Automotive Cluster of Coahuila
10:30
POWERING INTO A GREENER TOMORROW: POWERTRAIN SOLUTIONS PAVING THE PATH TO AN ELECTRIFIED FUTURE
Speaker: Alberto Romero, Vitesco Technologies
10:30
NETWORKING COFFEE BREAK
12:00 AI, ML AND IOT RESHAPING THE MEXICAN AUTOMOTIVE INDUSTRY
Moderator:
Lorena Isla, frost & Sullivan
Panelists: Roger Guerrero, Siemens Mexico, Central America and Caribbean
Federico Crespo, Valiot
Francisco Solano, Logicalis
Ana Núñez, SAp Mexico
12:45 ACCELERATING SUSTAINABLE MOBILITY SOLUTIONS IN LATIN AMERICA
Moderator: Israel Hurtado, H2Mex
Panelists: Carla Ortiz, RER Energy Group
Mariana Serrano, Uber Latin America
Daniel López, EVERGO
13:30
14:30
NETWORKING LUNCH
NAVIGATING THE ROAD OF CAR DEALERSHIPS IN MEXICO: THE CHANGING DYNAMICS OF MEXICO’S AUTOMOTIVE INDUSTRY
Speaker: Fernando Enciso, Grupo Surman
15:00
GUANAJUATO: ENERGIZING MEXICO’S AUTOMOTIVE INDUSTRY THROUGH EV MANUFACTURING
Speaker: Alejandro Hernández, Ministry of Sustainable Economic Development of Guanajuato
16:00
END OF MEXICO AUTOMOTIVE SUMMIT 2023
RESILIENT AND ADAPTABLE: MEXICO’S AUTOMOTIVE INDUSTRY SHINES
Mexico’s automotive industry has emerged as a bright spot amid a challenging global market, demonstrating impressive resilience and adaptability in the face of the COVID-19 pandemic. The industry is well positioned to take advantage of the global reorganization of supply chains, as it has become increasingly competitive and attractive to investors. However, the sector is also under increasing pressure to adopt Industry 4.0 to improve its competitiveness and address sustainability concerns, as highlighted by industry leaders at the Mexico Automotive Summit 2023.
“The automotive industry has relied on the same business model, processes and supply chain for over a century; however, the industry’s exposure to recent shocks has prompted it to innovate and adapt. With its strategic location, global integration and talent generation, Mexico has the potential to emerge as a formidable global competitor in the industry,” says Rodrigo Centeno, Senior Marketing Director, Nissan Mexicana.
The country’s automotive industry is recovering from the pandemic, primarily driven by a push for greater efficiency. The sector has long relied on the same models and processes, but recent shocks have forced it to make significant innovations.
demand. Despite these challenges, Mexico’s automotive industry represents a beacon of hope for the global industry and acts as a central hub for the generation of new technologies, says Gerardo Gómez, Senior Director and Country Manager MX, J. D. power.
Nevertheless, Mexico’s automotive industry is poised to become a global hub, thanks to several key competitive advantages. One of these is its favorable geography, which provides convenient access to the US, the world’s largest automotive market. Mexico’s location also enables it to be a hub for global distribution and logistics, which is particularly relevant as supply chains become more complex and fragmented. The country’s automotive industry benefits from global integration, which is driven by free trade agreements that promote cross-border investment and trade. finally, Mexico has a large and skilled workforce that is capable of generating new ideas and technologies, making it a fertile ground for innovation. As companies anticipate greater diversification of their portfolios, Mexico’s competitive advantages position it as a leading destination for foreign investment in the automotive sector, industry exper ts agree.
While Mexico is well-positioned to become a global competitor, recovery has not been as swift as observed in other parts of the world. National consumers remain financially fragile, and the industry’s recovery has not translated to significant growth in domestic
To fully leverage the nearshoring interest in the industry, it is also crucial for both the federal and state government to offer legal incentives that can instill investor confidence and accelerate investments in the infrastructure necessary to support the industry’s transition to electromobility and Industry 4.0. p rivate companies in Mexico’s automotive industry are actively pursuing Industry 4.0 transformations to improve their competitiveness and address sustainability concerns. However, there is a lack of understanding of the concept, and some companies are applying technologies without a long-term application strategy. To maximize the benefits of Industry 4.0, “a diagnostic process is necessary to identify
“The industry is transforming at an impressive speed. Sustainability gives the industry a boost and it has become a goal to be achieved”
Francisco González President | INA
areas of opportunity and make processes more efficient,” recommends Alberto Torrijos, p artner, Automotive Leading Consulting, Deloitte.
Mexico’s automotive industry is at a crossroads, trying to use technologies to identify the general and individual needs and wants of consumers, while also addressing sustainability concerns. “The industry is transforming at an impressive speed. Sustainability gives the industry a boost and it has become a goal to be achieved,” says f rancisco González, president, INA. In the supply chain, there are various levels of maturity across companies and traditional ones may not be prepared for the electrification of mobility. Investment is critical at this moment, especially considering that internal combustion (ICE) vehicles are less expensive and easier to produce, which is why they became popular over electric vehicles (EV) in the first place.
However, climate change has forced companies to explore and innovate EVs and their components to make them increasingly accessible. “Two significant barriers to electrification are battery costs and infrastructure,” says Centeno. In response, some companies are rethinking the problem, such as Nissan’s p OWER model, which will serve as an important intermediary option, especially in developing countries where it will take time to build infrastructure while remaining competitive with combustion vehicles. The launch of the p OWER model in Japan and other markets has been wellreceived, but the ecosystem is complex, making return on investment difficult to capture.
“There is a wind of a paradigm shift driven by social values, challenging companies to address these goals, however, it is easier said than done, and there are important challenges to overcome,” says Centeno.
USMCA INFLUENCES LABOR, COMPETITIVENESS OF MEXICAN INDUSTRY
The USMCA has significantly impacted Mexico’s automotive industry, keeping the sector competitive and ready for global changes. The treaty is transforming the automotive industry in Mexico, particularly in the areas of labor, rules of origin and environmental standards.
Rules of Origin and Nearshoring
One of the key changes in the USMCA was the requirement for a higher percentage of North American content in vehicles to qualify for duty-free treatment.
Specifically, the USMCA requires that 75% of a vehicle’s content be produced in North America (up from 62.5% under NA f TA). In addition, between 40% and 45% of a vehicle’s content must be produced by workers earning at least US$16 per hour, a measure aimed at reducing the incentive to outsource production to lower-wage countries. “ p roviders must be more precise in the information they deliver to automakers since revision in customs will be stricter, this is one of the main challenges to automakers derived from the USMCA,” says Thomas Karig, Independent
The supply of some raw materials, such as steel and aluminum, is another challenge brought by the USMCA. The treaty includes some requirements pertaining to steel and aluminum, which worry industry because Mexico is not a major producer of aluminum, while some steel producers might not comply with the industry’s minimum standards.
To comply with USMCA requirements, automotive manufacturers had to increase their production of components and parts in North America. This has led to significant investments in Mexico by automakers and top-tier suppliers, particularly in the area of EV production.
“The availability of spare parts produced in Mexico provides a competitive advantage for the country by helping to comply with the rules of origin in its free trade agreements,” says fausto López, Director of International Treaties and Customs, Volkswagen. Moreover, the country needs to build up its capabilities to produce EVs and their components, particularly batteries. “The battery is the most expensive part of an EV, accounting for 30% of the car’s value, and the battery cells represent 30% of the battery’s value. To comply with European and North American rules of origin, we must begin manufacturing batteries in the region, and this needs to happen immediately,” he adds.
Mexico has been exploring the possibility of producing batteries for EVs for the past few years and has worked hard in developing such capabilities, explains Karen Lellouche, Managing Director and Senior p artner, BCG. The country has promoted investment projects related to the production of EVs, targeting many steps of the value chain from lithium to spare parts. Clusters have also been working hard in developing and coordinating an ecosystem for the manufacture of EVs. “I think the next challenge for Mexico will be investing in R&D. Currently, Mexico is far from reaching that stage, but I think it is possible for it to invest in it,” adds Lellouche.
That USMCA will make Mexico more attractive to engineering efforts by strengthening its manufacturing practices, as many of its vehicles will be exported to the North American market. To improve their engineering areas, companies must collaborate with universities in Mexico, Asia and the EU to train better engineers for the automotive industry, as the sector needs workers who know of the technology and of Environmental, Social and Governance (ESG) standards, says Karig.
The USMCA also includes environmental provisions aimed at reducing emissions and promoting sustainable practices in the automotive industry. These provisions require automakers to reduce emissions and promote the use of environmentally friendly technologies in the production of vehicles.
The treaty has helped the automotive sector to remain competitive in the region and successfully recover from the COVID-19 pandemic. “By the end of 2022 we achieved a production of auto parts of US$741 billion, which represents a 12.73% growth when compared with 2021,” says Elisa Crespo, president, CLAUTEDOMEX.
Mexico still plays an important role in the world’s automotive sector. f oreign companies are no longer questioning whether they should relocate to Mexico;
“The battery is the most expensive part of an EV, accounting for 30% of the car’s value, and the battery cells represent 30% of the battery’s value. To comply with European and North American rules of origin, we must begin manufacturing batteries in the region, and this needs to happen immediately”
Fausto López, Director of International Treaties and Customs | Volkswagen México
they are questioning in which part of Mexico they should land, says Leolluche.
Labor
The USMCA has also brought significant changes to Mexico’s labor environment. “We are working hard with companies to catch up with compliance regarding labor rights,” says López.
Since the enforcement of the USMCA, the hegemonic Mexican Worker Confederation (CTM) has started to lose power among automotive companies. CTM-affiliated unions have lost workers’ votes to independent counterparts at key plants, such as Nissan Aguascalientes and General Motors Silao. With the automotive sector leading the way, the entire Mexican industrial sector could experience a dramatic shift in worker representation, allowing workers to freely elect their representatives and
actively participate in decision-making processes.
Under USMCA, Mexico agreed to implement labor reforms to improve working conditions, protect workers’ rights and promote collective bargaining. In some cases, these reforms have led to higher wages, better working conditions and more stable labor relations in the Mexican automotive industry.
USMCA also triggered several labor complaints from the US government against Mexico, as US authorities alleged that some companies in Mexico did not respect freedom of association and collective bargaining rights. To prevent any problems, automakers remain in close contact with suppliers to keep up with new labor regulations, fostering free association rights and collective contracts, while working on the prevention of discrimination and forced labor, says López.
THE MULTIPLE ROADS THAT LEAD TO ELECTROMOBILITY
f or decades, the automotive industry has favored steel and metal alloys in the manufacture of vehicles due to their favorable performance and low cost. However, modern vehicles demand advanced materials to improve the fuel efficiency, while still maintaining safety, performance and affordability. EVs also need lighter materials, such as magnesium and aluminum alloys and high-performance polymers, among others.
“The EV trend will continue and we will have to participate and understand how we are
part of it,” says Martin Toscano, CEO, Evonik. To meet the demand for lighter materials, the automotive industry is even adapting products from the aerospace industry, adds Toscano.
Lightweight materials have the potential to increase vehicle efficiency significantly since lighter objects require less energy to accelerate than heavier ones. The US Office of Energy and Renewable Energy (EERE) reports that a 10% reduction in vehicle weight can result in a 6-8% improvement in fuel economy. Replacing traditional
steel components and cast iron with lightweight materials like high-strength steel, magnesium alloys, aluminum alloys, carbon fiber and polymer composites can reduce the weight of a vehicle’s body and chassis by up to 50%, directly reducing fuel consumption.
An average vehicle is composed of 65% steel, 13% aluminum, 4% magnesium, 6% plastic and polymer composites and a variable percentage of glass, adhesives, sealers and foam, as reported by MBN. The chemical industry plays a crucial role in addressing the challenges faced by companies transitioning to electromobility. f rom battery recycling to microchip manufacturing, this industry is involved in many aspects of this transformation.
lighter and more fuel-efficient vehicles that meet stringent safety standards. As such, they are essential in driving the automotive industry toward more sustainable and environmentally-friendly transportation solutions. “Addressing pollution, affordability and a second life for batteries will be key for the success of the EV industry,” says Ramón Mariscal, president Mexico and Latam , Dupont.
Battery recycling is one key for the automotive industry as it is essential for sustainability. Without proper battery recycling, the environmental benefits brought about by EVs would be reduced. EV batteries have been linked to negative environmental effects. Although lithium is not toxic by itself, lithium-ion batteries contain cobalt, nickel and manganese, which are considered toxic heavy metals. Mining and refining the raw materials needed for a vehicle create a high amount of greenhouse gasses. Moreover, CO 2 emissions linked to materials and EV assembly are higher than those of a traditional car, according to Harvard.
Innovation is boosting the transition toward lightweighting and electromobility. “All the players in the industry are moving toward the same main objectives: safety and efficiency,” says Renato Villaseñor, president and Executive Director, Queretaro Automotive Cluster.
Specialty chemicals play an essential role in the development of the advanced materials used in vehicle manufacturing, particularly in the area of lightweighting. These chemicals are used in the formulation and processing of lightweight materials such as aluminum alloys, carbon fiber and polymer composites, which are increasingly used to replace heavier traditional materials like steel.
Through their unique properties, specialty chemicals enable the creation of materials with superior strength, durability and weight-saving capabilities, resulting in
Coatings also play a crucial role in vehicle material technology and lightweighting. They are used to improve the durability and corrosion resistance of lightweight materials like aluminum and magnesium alloys. Coatings can also be used to reduce friction, improve aerodynamics and enhance the appearance of vehicles.
f urthermore, specialized coatings can provide additional properties such as thermal insulation, electrical conductivity and anti-static properties. “One of the most critical processes we have to consider is insulation. It is key to making safer batteries,” says Mariscal. Coatings are crucial in achieving the desired performance, safety and environmental objectives of modern vehicles, while still maintaining their aesthetic appeal.
Although automakers continue exploring and developing alternative materials, copper will remain essential. The demand for thi
“ One of the most critical processes we have to consider is insulation. It is key to making safer batteries”
Ramón Mariscal President Mexico and Latam | DuPont
material is expected to double in the coming years, explains Markus Shcueler, Senior Director Sales and Marketing, Wieland Rolled p roducts. Industry players have to be prepared for this upcoming scenario.
“Mining and refining capacities must be addressed. Significant spikes of demand cannot be accommodated overnight; we have to plan today for the demand of tomorrow,” said Shcueler.
Copper and copper alloys are increasingly being used in the manufacturing of EVs due to their excellent electrical conductivity and thermal properties.
Copper plays a critical role in the production of key components in EVs such as electric motors, batteries and charging infrastructure. It is also used in wiring and electrical connectors thanks
to its superior conductivity, durability and resistance to corrosion. Additionally, copper alloys are used in various structural components of vehicles due to their strength, ductility and resistance to fatigue. The use of copper and copper alloys in EVs is expected to grow as the demand for electromobility continues to increase, reinforcing its significance in modern vehicle manu facturing.
While innovation across fields is boosting the electromobility transition, there are still challenges ahead that need to be addressed, requiring engagement with local authorities. The sector also needs to work towards standardization and pursue sustainability at all levels of the supply chain to allow Mexico to become a leader in electromobility.
AGILE PROCUREMENT STRATEGIES NEEDED TO ENSURE SUPPLY
Before the COVID-19 pandemic, automakers relied on fast procurement strategies to stay ahead of the competition and innovate within the market. However, in the last three years, supply chain disruptions forced the entire automotive sector to rethink its approach to material purchases and adopt effective forecast techniques.
To survive in today’s dynamic market, OEMs, logistics businesses, Tier 1, Tier 2 and Tier 3 providers must adopt procurement strategies that can help them thrive. These strategies include developing long-term partnerships with suppliers and embracing new digital technologies. “We must plan while remaining flexible. To plan better, you need a lot of technology but, above all, a lot
of data,” says Manuel Tamayo, CEO, Element fleet Management Mexico.
In this scenario, procurement strategies are now more important than ever, as automakers aim to secure supplies and even reduce the customer delivery lead time, while dealerships face a considerable increase in the time to fulfill demand for new vehicles.
Nearshoring and relocation are becoming increasingly popular strategies for automakers that seek to reduce the distance and potential problems when supplying the North American market. In particular, Mexico’s automotive industry is receiving projects from companies that previously manufactured in their home countries or
in some regions of Asia. Regionalization has become a trend for OEMs, which are seeking to create an entire manufacturing ecosystem within the same region. This strategy helps to cut costs by reducing transportation distances and import taxes, while improving supply chain efficiency.
“Having a more integrated supply chain is very convenient for Mexico. It is very beneficial for the country to have vehicles with more Mexican content,” says Manuel Montoya, Director, CLAUT.
Companies considering relocation must conduct a thorough analysis to identify the optimal location that can provide the necessary supplier infrastructure and talent, besides the potential advantages in terms of production and logistics costs. This will allow them to ensure quality production. Miscommunication and cultural differences may lead to delays and disputes between companies and suppliers, making a local supplier that understands the business environment critical for new investors.
Before the pandemic, OEMs collaborated mainly with Tier 1s, causing a major issue during the outbreak as industry leaders did not understand the complete supply chain, which maximized the effect of disruptions on the entire sector, says Mónica García, Global p urchase & Supply Chain Director, General Motors. To prevent similar issues, the sector needs to embrace technologies and processes to boost resiliency, transparency and sustainability. “It is yet not mandatory, but we encourage our suppliers to join decarbonization efforts,” says García.
Digitization plays a critical role to understand current market events and even forecast future changes to keep up with customers and OEMs. To reduce the impact of supply chain disruptions, it is critical that the industry as a whole has integrable solutions.
The sector must not only have unified goals; it should also take a proactive approach to norms and regulations to ensure the interchangeability of parts. We must be in close contact with our suppliers to remain informed about the availability of parts and offer the customer a better delivery time,” says Miguel Saldamando, CEO, CEAT.
There is not a “one-size fits all” solution because every company has to deal with different suppliers, demand and production processes. However, experts agree that this challenge creates an opportunity that Mexico must take advantage of, as it could allow it to increase its participation in the automotive industry, Xavier Ordoñez, Supply Chain Leader partner, Deloitte, tells MBN. “Mexico must take advantage of its strategic location, not only to integrate with North America but also to become a continental hub in the Latin American value chain,” says Ordoñez.
Data has become a must for all companies that wish to be competitive in today’s market, as its correct analysis and use boosts automakers’ added value by allowing them to understand what the market is facing, explains Tamayo. Due to the lack of availability of both raw materials and finished products, it is difficult for customers to receive a newly-purchased vehicle in less than 120 days , he adds.
The ever-changing panorama demands new levels of adaptability from the Tier 1, Tier 2 and Tier 3 companies, as the use of digital tools allows for faster changes in the technical requirements of auto parts. This changes the outlook for suppliers, which are now forced to digitalize their entire manufacturing process, a process that requires significant investment and a
“ We must be in close contact with our suppliers to remain informed about the availability of parts and offer the customer a better delivery time”
Miguel Saldamando CEO | CEAT
shift from traditional business operations, says Montoya.
Despite the challenges, adaptability will remain essential and modern technologies
allow for its fast implementation across the supply chain. “Engineering changes no longer take months. Robotization allows suppliers to make faster changes,” says Saldamando.
THE AUTOMOTIVE INSURANCE LANDSCAPE REQUIRES INNOVATION
The automotive industry has seen a significant increase in the number of OEM captive finance companies entering the vehicle insurance market in recent years. Their entry is sharply transforming the landscape for all players involved.
OEM captive finance companies are financial institutions owned by the automakers themselves that offer financing services for vehicles to customers. These companies have rapidly grown in the Mexican market as “60% of the vehicles in Mexico are purchased through credit and 79% of these credits come from captive financing companies, 18% from banks and 2% from self-financing companies,” says Guillermo Rosales, Executive president, AMDA.
“Companies must be flexible when offering packages to clients, ensuring that the product is economically feasible for them. It is important to separate insurers’ wide offer with the actual paying capacity of each client”
Víctor Rojas Director of Automotive Banking | BBVA
One of the main benefits of their entrance into the insurance market is that they provide customers with a more comprehensive and integrated car-buying experience. Rather than having to work with multiple providers to purchase a vehicle and obtain insurance, customers can now work with a single entity that offers both services. This simplifies the purchasing process, making it more convenient for customers and potentially boosting vehicle sales. In addition, OEM
captive finance companies can leverage their existing relationships with automakers to offer customers insurance packages that are tailored to the specific features of their vehicles. f or example, a luxury automaker’s financing company could offer insurance packages that cover high-end features such as advanced safety systems or high-performance engines, providing customers with personalized coverage options and helping to drive sales of more expensive vehicles.
The entry of OEM captive finance companies into the vehicle insurance market represents a significant challenge for traditional vehicle insurance companies, which now face increased competition and potential disruption of their business models.
These circumstances require flexibility and innovation from traditional players. “Insurance must also be flexible so that it adapts to customers’ payment capabilities,” says Víctor Rojas, Director of Automotive Banking, BBVA. A key aspect of the insurance contract is a focus on the client’s needs, rather than only on car features. “Companies must be flexible when offering packages to clients, ensuring that the product is economically feasible for them. It is important to separate insurers’ wide offer with the actual paying capacity of each client,” adds Rojas.
Insurance is always necessary but as competition increases, insurers must focus on offering a wider variety of services that complement insurance. This will allow them to differentiate themselves from other providers. “Insurance is mandatory in a credit contract, because it also protects the financial institution. This has led insurers to create more innovative products. Insurance
has basically become a commodity,” says Jaime p edraza, Country Manager, GarantipLUS Mexico.
To keep up with the market, insurers of all sizes are looking to digitalize their operations to make credit acquisitions more transparent, which will simultaneously make their products more attractive to younger generations. “It is a great differentiator to allow users to access an automotive credit with insurance, warranty and accessories,” says Rojas. The goal is now to connect the platforms of different players like insurers and credit institutions into one single place.
However, insurers’ ability to venture into new digital models is being barred by the legal
framework and insecurity, says fernando Ardura, Chief Business Officer, Traffilo. “It is true that major marketplaces have grown exponentially. However, we are missing the opportunity to have p 2 p marketplaces, because users do not trust such schemes due to the lack of rule of law and organized crime,” he adds.
In Mexico, companies do not have a proper method to measure risk when evaluating a potential insurance user, says Ardura: “In other countries, insurers have tailored insurances based on the user’s driving habits. We now have the technology to do so. I am not talking about making insurance cheaper but fairer.”
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.
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.
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
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.
f inally, 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.
“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”
Guillermo Rosales Executive President | AMDA
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.
R&D: THE NEXT STEP IN MEXICO’S AUTOMOTIVE JOURNEY
Mexico is transitioning from a manufacturing hub into an engineering and service provider powerhouse, and increasing R&D is crucial to this transition. With rapid shifts in the global economy and the rapid transformation of the supply chain, companies would benefit from focusing on R&D to remain competitive. A company that is strengthening its bet in R&D is Italian tire manufacturer pirelli, which has made large investments in developing innovation in Mexico.
p irelli started operations over 151 years ago and now has one of the largest and more important R&D centers in Mexico. The company created a solid foundation for its operation in the country thanks to its major manufacturing plant and R&D center in Guanajuato. “ p irelli inaugurated its first plant in Mexico in 2010. In 2019, the company developed a specific cultural program for the Mexican context,” says Gonzálo Rodríguez, CTO Mexico, p irel li Mexico.
This specific program helped the country establish itself as one of the critical areas in pirelli’s global strategy, says Rodríguez. Thanks to its good results and the increase in demand, pirelli has doubled its operational capacity. Beyond increasing the scale of its operations, pirelli invested in the country’s potential as an innovation and technology hub for the market’s new demands.
Mexico must increase its investment in R&D and education to improve its position in the global automotive industry, which demands expertise across different domains and brands. To successfully develop R&D, the government, private sector and academia must collaborate and delineate joint objectives that promote job creation, talent development and sustainability. Investing in talent is crucial as a well-trained workforce can drive innovation, ensure quality and provide a competitive advantage, key components for creating steady and sustainable growth.
Countries with a large pool of talented individuals are also more likely to attract foreign investment and collaborations, as well as retain their homegrown talent and gain a competitive advantage in the global marketplace. Moreover, investing in local talent also contributes to the economic growth of a country. Talented individuals often earn higher salaries, which in turn translates to greater consumer spending and economic activity.
Alongside the recent influx of manufacturing operations, Mexico is witnessing a surge in new engineering and R&D centers, such as p irelli’s. The tire manufacturing giant has made great efforts to expand its product portfolio in accordance with market demand. “Several decades ago, only a few details were required for tires. Their design, however, has become more sophisticated and we have focused on a high value strategy based on specialty developments,” says Rodríguez.
R&D investments prove to increase companies’ added value, allowing them to fully integrate digitized services that provide significant savings over the medium and long term. for example, pirelli Mexico is developing a virtual line for the first stages of new wheel models, which seek to meet the automotive sector’s future demands. This program creates fully digital prototypes
and performance tests that allow for greater flexibility when designing new models due to significant cost savings in physical prototypes, says Rodríguez.
Consumers now demand more from their vehicles, as the concept of mobility is changing to embrace safe, green and personalized services. To achieve this transformation, the entire automotive supply chain must collaborate to deploy innovative solutions. This market transition is not only affecting OEMs but the entire automotive industry, which requires more talent to fully adapt to these changes.
While the global automotive industry is experiencing a shortage of design engineers as workforces in developed countries age out of the market, over 100,000 engineers graduate annually in Mexico. These engineers are eager to pursue careers in the country’s main manufacturing industries, says Manuel Montoya, Director, Cluster Automotriz de Nuevo León. Other developed countries are not seeing their workforce grow, resulting in increased labor costs and decrease of availability, adds Montoya. These countries have grappled with population declines for years, and the situation is unlikely to improve without a well-planned and targeted immigration policy. These talent gaps give Mexico a unique opportunity to take on the excess demand that companies are seeking.
Mexico has seen an investment boom in R&D, as the automotive industry sees in Mexico a great opportunity because the country offers the right balance between highly trained and experienced labor, a mid-size local market that continues to grow, a talented engineering pool and a privileged location.
MEXICO AT A CROSSROADS: PROTAGONIST OR SUPPORTING CHARACTER?
As the world continues to move toward a more sustainable future, the demand for electric vehicles (EVs) has grown
significantly. Mexico, with its vast reserves of lithium and a strong manufacturing base, has the potential to become a protagonist
in the global electromobility transition. However, as with any major industrial transformation, significant challenges must be overcome, including addressing the Industry 4.0 paradigm shift, completely reevaluating the manufacturing process to build EVs and educating consumers. fortunately, the Mexican government has shown willingness to support the shift towards electromobility, which bodes well for the country’s prospects, agree industry leaders.
“Mexico’s automotive sector stands at a crossroads, as it possesses all the necessary qualities to emerge as a leading regional or even global hub. However, to achieve this goal in the short to medium term, Mexico needs to stimulate domestic demand for EVs so companies can confidently make significant investments to scale up production with economies of scale,” says Isidoro Massai, CEO, Giant Motors, JAC.
Mexico has a unique opportunity to emerge as a prominent player in the global electromobility transition, given its various strengths. first, the country boasts a robust domestic market that presents a significant opportunity for EV sales. f urthermore, Mexico has a historic reputation for great manufacturing competitiveness, which, coupled with low manufacturing costs and high-quality labor, positions it favorably as a potential EV manufacturing hub. Mexico’s proximity and status as the most important commercial partner to the US also provides it with a strategic advantage. However, despite these strengths, most of Mexico’s infrastructure is designed for internal combustion engine (ICE) vehicles.
It is, therefore, crucial for Mexico to adapt to the rising demand for EVs and maintain its privileged status as a manufacturing powerhouse.
The transition to electromobility is not just about building a different type of vehicle, but rather a complete reconfiguration of the manufacturing process. The EV has qualities that “make it more similar to a high-tech gadget than a traditional car, and this means that companies will need to integrate new technologies like AI, IoT and IT,” says Jorge Vázquez, R&D Head Mexico, Zf Group. The challenge lies in the fact that the traditional auto industry may not be familiar with these technologies, and companies will need to invest in their talent to ensure that they are prepared to use and maintain them. The paradigm shift toward Industry 4.0 is happening globally, and some companies have already begun the transformation process. In the last seven to eight years, there has been a significant shift in companies’ R&D budgets as they look to leverage and integrate new technologies to build EVs rather than combustion cars, says Massai. Therefore, it is crucial for Mexico to invest in the necessary infrastructure, workforce development and technological advancements to meet the rising demand for EVs and remain competitive in the global market.
To detonate Mexico’s EV demand, there are three key areas that need attention: consumer education, legislative incentives and the construction of supporting infrastructure. f irst, there needs to be a consumer education process that explains the benefits of EV use and how to use and
maintain them. This would help dispel myths and misinformation about EVs and encourage more people to consider purchasing them. Second, there needs to be a legislative push that goes beyond just economic incentives. Currently, Mexico is one of the few countries that does not offer any economic incentives to buyers of EVs, and this is a missed opportunity for the government to facilitate the transition. To address this, “Mexico could learn from countries like Norway, which has already implemented successful policies and legislation to promote EV use. By copying the language of these policies and legislation, Mexico can leapfrog the learning process and speed up the adoption of EVs,” says Stefan poltz, president of the Industry 4.0 Innovation Committee, Automotive Cluster of Coahuila.
f inally, the construction of supporting infrastructure is crucial for the success of EVs. This includes building a network of charging stations, upgrading the electrical grid to handle increased demand and providing incentives for private companies to invest in this infrastructure. To address these challenges, the government, private sector and academia are collaborating to develop a manual that records what has worked and failed in this process. By taking these steps, Mexico can become a leader in the global electromobility transition and reap the economic, environmental
and social benefits of this technology. EV adoption will take time, but I hope that we will take advantage of the experience of other countries. There must be more investment in R&D and cooperation with the government.
The Mexican government’s commitment to accelerating its efforts to reduce emissions and achieve electromobility goals has been evident in recent years. Minister of foreign Relations Marcelo Ebrard has emphasized Mexico’s responsibility to reduce emissions as one of the world’s largest economies. This commitment has been further supported by the global shift toward EVs, with major automakers like General Motors, ford and BMW announcing ambitious plans to phase out gas-powered vehicles and invest heavily in electromobility. Mexico has a unique opportunity to become a key player in the global EV market, and recent developments in the country indicate a clear shift towards achieving this goal. As reported by MBN, Mexico aims for 35% of its energy production to be green by 2024, which aligns with North America’s decarbonization plans. “With the government’s willingness to support the shift toward electromobility and the country’s potential to become a major player in the EV market, Mexico is wellpositioned to lead the way in the transition to a more sustainable future,” says Juan Cerdeira, General Man ager, SEV.
DRIVING SUSTAINABLE INNOVATION IN MOBILITY
Greenhouse gas emissions have been of global concern for years and the transportation industry is one of the largest contributors to this problem. for this reason, the automotive sector is adopting electromobility, which will also open the door to more innovation.
“The faster electrification arrives, the faster opportunities will arise for companies to develop more smart solutions,” says Alberto Romero, Mexico R&D Director, Vitesco Technologies.
With transportation accounting for 14% of total emissions worldwide, it is critical to work to implement more sustainable mobility solutions. Luckily, many actors are pushing forward the sustainability transition, including regulators, social awareness groups and Original Equipment Manufacturers (OEM). “While some environmental groups are pushing for decarbonization, society, in general, has already made the switch to favor strategies such as EVs,” says Romero.
One critical part of this transition lies in powertrain technology, which converts energy from the engine to the wheels of a vehicle. p owertrain technology advances play a crucial role in reducing the environmental impact of transportation, as they are the leading agent behind boosting the efficiency behind combustion, electric and hybrid vehicles.
p owertrain systems include engines, transmissions, electric motors and fuel cells. This is why their efficiency and performance are key factors in determining a vehicle’s environmental impact over its life cycle.
for example, modern internal combustion engines are much more efficient than their predecessors, being fuel-efficient and producing less emissions. In the case of electric powertrains, it is possible to eliminate the production of emissions altogether, providing an even greener solution. f or hybrid vehicles, the combination of internal combustion engines and electric motors provides an optimal balance between performance and sustainability. This makes hybrid vehicles an attractive proposition for those looking to transition from traditional combustion vehicles to EVs.
Vitesco Technologies is seizing the opportunity to develop smart solutions for more sustainable mobility. With the growing adoption of EVs, Vitesco Technologies is in a unique position to provide solutions that cover all propulsion needs for electric and hybrid vehicles. While EVs may be growing in popularity, it is worth noting that hybrid cars currently have the highest market penetration.
The company has a broad portfolio of products and services that cover everything from electric drives to transmission control units. The company’s commitment to sustainability is evident in its “Direction 2030” strategy, which aims to power clean mobility by focusing on leadership in electrified solutions, business excellence, great people, investors’ choice and sustainabilit y drivers.
Vitesco Technologies operates in 50 locations worldwide and has over 37,000 employees, making it one of the largest companies in the industry. In 2021, the company achieved a turnover of €8.3 billion (US$8.8 billion) in sales. Vitesco Technologies has been present in Mexico since 1993 and has been working on innovative solutions for sustainable mobility in the region.
In September 2019, Vitesco Technologies began a process to separate from its parent company, Continental Automotive. The move has allowed Vitesco Technologies to focus on driving sustainability and innovation in the mobility industry.
Major automakers are committed to electrification, presenting the industry with major opportunities and challenges. The shift from ICE vehicles to EVs is not limited to passenger vehicles, with commercial trucks and buses rapidly adopting electrification. However, the lack of infrastructure and higher costs of EVs are two major barriers that stand in the way of the democratization of electric transport.
This is where public-private partnerships and collaborative innovation can play a
crucial role. By working together, different sectors can pool their resources to build the necessary infrastructure, drive down costs and increase the investment in R&D with the ultimate goal to increase accessibility to electric and hybrid cars. Governments can offer incentives to consumers and businesses to invest in EVs, while private
companies can work to develop more efficient batteries and charging solutions. Collaboration between different sectors can also help to accelerate the transition to a more sustainable future by sharing knowledge and expertise. “ p ublicprivate partnerships are what will bring collaborative innovation,” says Romero.
DIGITIZATION: KEY TO BOOST PRODUCTIVITY IN MANUFACTU RING LINES
Every step of the automotive supply chain is undergoing a transformation, from the materials needed to produce vehicles to the perception of mobility as a whole. Chief among these trends is digitization, as the introduction of new tools such as artificial intelligence (AI), machine learning (ML) and internet of things (IoT) is reshaping the industry.
“In recent years, digital technologies have been drastically enhanced and undergone the transition from expert application to people’s everyday lives. Just as the introduction of the steam engine and the spread of electricity changed society in the past, so is digitalization having a profound impact on society and the economy today,” writes Thomas Moller Thomsen, president, fIA Region.
Mexico has historically been known as a manufacturing powerhouse in the automotive sector. If the country wants to remain a powerhouse, the entire automotive industry has to commit to digitalization. Both automakers and customers are demanding more optimization across the
supply chain, improved competitiveness and overall safer operations.
One of the most praised aspects of Mexico’s automotive industry is its quality, as it has proven to be a key element in determining the competitive level of the sector, says francisco Solano, Head of Technology and portfolio NoLA, Logicalis.
While opinions on the future of mobility are varied, most experts agree that the use of interconnected, electric-powered vehicles will allow for the development of a more sustainable and safer industry. The implementation of digital tools across the industry will also benefit the end consumers, allowing them to access real-time information about their vehicle and enhance its performance, explains Lorena Isla, Director of Latin America – Mobility, frost & Sullivan. “AI and ML create an immense opportunity to improve operations across the entire production chain,” she adds.
The relationship between technology and the industry is indispensable, as these actors are the main driving forces behind each other, adds Solano.
Autonomous driving, shared-mobility models, customized insurance contracts, remote diagnostics and predictive maintenance services would not be possible without the industry’s consistent efforts to adopt AI, ML and IoT. But to adopt these technologies correctly, the sector must first start by digitizing its manufacturing and assembly lines, while also implementing these tools to achieve
vanity measures, differentiate themselves from the market and add value across entire processes, says f ederico Crespo, CEO, Valiot.
“Digitalization in the manufacturing fields helps businesses to have a real-time context on the current state of the plant, which allows them to make better and faster decisions in the heat of the moment,” says Crespo. This technology can also give companies better forecasts by analyzing more variables, simultaneously increasing flexibility in the production lines.
The agility required by the industry, especially after the COVID-19 pandemic has led the sector to blur the lines between engineering, logistics, manufacturing and production. Technology tools, such as AI, IofT and ML, play a critical role in this area by exponentially improving the flexibility of production lines, says Ana Nuñez, Digital Supply Chain Account Director, SA p. However, companies must look for realistic solutions that go hand in hand with the concept of lean manufacturing, which will allow them to “make affordable and practical implementation projects that really seek to improve a company’s manufacturing operations,” adds Nuñez.
AI will play a defining role in the quest for fully automated plants, as data is becoming the most valuable asset in the industry, says Roger Guerrero, Head of f actory Automation and Motion Control, Siemens Mexico, Central America and Caribbean. Data analysis can help companies to
identify time, energy and production waste throughout the entire production chain, ultimately improving the company’s productivity, quality and profitability. However, these improvements will not be achieved unless data logging on the shop floor becomes a critical component for manufacturing companies, adds Guerrero.
The automotive sector faces several other challenges in adopting AI, Ml and IofT, such as significant implementation costs. Digitalization often requires a considerable investment in employee training and infrastructure, including hardware and software. When implementing new and “unknown” technology tools, manufacturing companies often face a cultural impact, as there will surely be frictions that might initially make the process slower and more difficult for both the company and the employees.
There are also security concerns involved, including data privacy. Thus, strong cybersecurity practices are required to protect this information. Robust data security measures, including encryption and authentication methods, can ensure that sensitive data is protected from unauthorized access.
A key challenge in Mexico will be the long age of its vehicle fleet, which could difficult the integration of new technologies with the legacy systems used by older models. Regulatory compliance can also be a challenge, particularly when it comes to data privacy and security.
ACCELERATING ELECTRIC MOBILITY SOLUTIONS IN LATIN AMERICA
Access to reliable transportation has been a longstanding challenge in Latin America, particularly in urban areas. As countries across the region work to address this issue, one solution that is gaining traction is the shift towards electric mobility. While each country in Latin America presents its unique challenges and opportunities, there are common obstacles that must be overcome to accelerate the adoption of
EVs and other sustainable transportation solutions. These include connecting private sector needs with government policies, but immediate points of opportunity include installing public charging infrastructure, increasing the penetration of sustainable energy, fostering collaboration and sharing technology among stakeholders, agree industry experts at Mexico Automotive Summit 2023.
“As we work towards the goal of accelerating electric mobility solutions in Latin America, it is essential to recognize that this is not something that can be accomplished by any single party. The key barrier to achieving this reality is the lack of effective communication and dialogue among stakeholders. We need to prioritize public discourse and collaboration to ensure that all parties involved are able to work towards a common goal,” says Mariana Serrano, Operations Director, Uber LATAM.
Access to sustainable and efficient mobility in Latin America has been a long-standing challenge for several countries in the region. p opulation growth and urbanization have made it harder to provide affordable and efficient mobility to citizens. Outdated transportation infrastructure, traffic, long commutes and air pollution are common issues faced by several cities in the region. The inequality in income distribution contributes to segregated cities, which creates disparities in mobility quality and travel times.
“Everything generates pollution. The important thing is to reduce emissions and also implement mitigation measures,” says Israel Hurtado, p resident, Mexican Hydrogen and Sustainable Mobility Association (H2Mex). To transition to cleaner means of transportation, Latin America and the Caribbean need to reduce greenhouse gas (GHG) emissions generated by the transport sector, which accounts for 32.4% of emissions within the energy sector, according to the UN Economic Commission for Latin America and the Caribbean (ECLAC).
To address the issue, some governments in the region have implemented actions to encourage the use of sustainable transport modes and reduce dependence on private vehicles. However, lack of infrastructure is a significant challenge delaying the implementation of cleaner mobility in Mexico and the rest of Latin America. Cities often have inadequate public transportation systems, bike lanes and congested roads. As a result, people find it hard to use sustainable modes of transportation such as walking, cycling or public transit. In addition, there is a lack of investment in public transportation, which can lead to inadequate services and poor maintenance. To overcome these challenges, significant investment in infrastructure and public transportation systems is n ecessary,
p rivate sector investment is critical to making government policies and regulations related to mobility a reality. However, public and private actors often have different agendas and tensions, which require strong leadership and collaboration among stakeholders, says Daniel Abraham Lopez, CCO, EVERGO. Thus, a shared vision for more efficient and cleaner mobility is necessary. A holistic approach to the problem is necessary, and partnerships between the public and private sector can help create a programs for charging stations. EVERGO, for example, has entered into agreements with several companies, including BMW, to develop public charging stations. Both companies have pledged US$200 million to develop 15,000 charging stations to meet private and commercial needs, as reported by MBN.
“The challenge is a holistic one, which involves internal infrastructure changes that consider the country’s energy network. However, this is a significant commercial challenge for companies that have sustainability goals, given the country’s heavy reliance on fossil fuel combustion for energy generation,” says Carla Ortiz fuentes, Country Manager Mexico, RER Energy Group.
Reducing the use of combustion cars is necessary to curb carbon emissions, especially during extraction and manufacturing stages, explains Serrano. Maximizing the cars’ life can help further reduce emissions. However, it is also key to have public dialogue and discourse among stakeholders to achieve more efficient and cleaner mobility. Creating multi-modal cities centered around people, rather than
cars, is essential, and public transportation plays a critical role in achieving this. Once these steps are taken, leaders can focus on accelerating the transition to EVs and other related issues.
To accelerate the adoption of EVs and other sustainable transportation solutions in Latin America, industry experts agree that public discourse and collaboration among stakeholders are necessary. Connecting private sector needs with government policies is also critical. Building public charging infrastructure, increasing sustainable energy penetration and fostering collaboration and technology sharing among stakeholders can help overcome the common obstacles faced by Latin America and accelerate the adoption of electric mobility.
THE EVOLUTION FROM TRADITIONAL VEHICLE DISTRIBUTORS TO DISRUPTORS
The automotive industry has not been able to fully recover from the COVID-19 pandemic. Delivery delays and shortages of essential parts have become common occurrences, putting a strain on dealerships and impacting customer satisfaction. To address these challenges, dealerships have deployed innovative strategies to quickly adapt to industry trends, customer demands and other logistics challenges.
“The pandemic put a lot of financial stress on companies. We understood that instead of adapting, we had to evolve and find alternatives,” says fernando Enciso, Director México, Grupo Surman.
Manufacturing and distribution in the automotive industry have highly different dynamics. f or many years, innovation in the industry solely focused on the vehicles themselves, with traditional distribution processes remaining the same. In the past, the market was dominated by a few major brands, such as GM, Nissan, ford, Chrysler and Volkswagen, with customers developing a strong preference for one or some of them. This way, the industry experienced regular growth year after year, without major disruptions, explains Enciso.
In the late 20th and early 21st century, new players like Honda and Toyota arrived,
disrupting the market with high-quality vehicles with lower maintenance costs. The new competition forced traditional brands to review their post-sale processes, strategies and costs. As competition intensified, processes and indicators in the distribution industry began to change.
As time passed, the market continued to evolve with Korean brands KIA and Hyundai, which positioned themselves by offering greater guarantees than traditional brands, says Enciso. This change led traditional brands to explore new strategies to defend themselves and adapt to the new competition.
Later, the COVID-19 pandemic brought great uncertainty to the industry. Many dealerships closed their commercial areas, leaving only their service areas active. Dealerships had to reconfigure their business format, relying solely on aftersales and not knowing when the situation would stabilize. “After the pandemic, despite returning to normal, we still had no inventory because manufacturers reduced production. This is a challenge we are still facing,” says Enciso.
The smaller number of new vehicles has led many individuals to Mexico’s secondhand market, creating a significant breach between OEMs, dealerships and the end customer. This widening gap has reduced demand and sales of new light vehicles, while opening up the door for Chinese com petitors.
Chinese brands are now offering hightech options, including hybrid and electric vehicles with long-range batteries. “The industry is also adapting to Chinese competition and new trends in electric mobility. In this scenario, we have to take the opportunities to change,” says Enciso.
Less production of new vehicles also to led a reduction in demand for car transportation services, affecting both
dealerships and OEMs by contracting the market management services that many of them provide. This issue created additional layers that dealerships must work through.
In an effort to stay competitive and provide added value to customers, many dealerships are increasing their service portfolio, providing insurance coverage and offering financing alternatives through in-house companies or strategic alliances. f or example, dealerships may offer extended warranties with a broad range of financing options to help customers secure the best possible deal. By offering these types of services in-house or through partnerships, dealerships and online sellers can enhance the customer experience and build stronger relationships with clients.
Dealerships also provide different advantages for OEMs, such as increased liquidity. This allows automakers to distribute vehicles through their network quickly, freeing up time to focus on expanding manufacturing capacity and upgrading technology – both critical aspects of meeting custome r demands.
In addition to providing OEMs with greater liquidity, the dealership model allows for efficient vehicle distribution, thereby enabling automakers to improve manufacturing processes and upgrade technology to meet changing customer preferences.
As the world transitions from an industrial age to a digital one, the market is evolving rapidly calling for distribution formats that are more sustainable and technological. As Mexico prepares for the transformation that EVs will bring to the distribution sector, it is necessary to recognize that every crisis brings opportunities. “We understand that every crisis has its positive and negative parts. We chose to focus on the positive as we understood that change brought possibilities,” says Enciso.
GUANAJUATO PAVES THE ROAD TO ELECTROMOBILITY
The electromobility transition is bringing countless challenges and opportunities to the automotive sector. While already consolidated as a strong automotive supplier, Mexico will find in this transition ways to continue growing thanks to the advent of new trends like electromobility. As these trends continue penetrating the country, its major automotive hubs like Guanajuato play a key role in ensuring the smooth adoption of the emerging trends.
“We are a state with business-friendly public policies. projects that arrive in Guanajuato do not suffer any delays,” says Alejandro Hernández, Deputy Minister of Investment Attraction, Ministry of Sustainable Economic Development of G uanajuato.
Traditionally known for its manufacturing expertise, Mexico brings a unique set of benefits for car makers, including its lowcost, highly-qualified labor and proximity to the US and Canada. Thanks to these benefits, the country is now one of the most important automotive hubs in the world. In recent years, nearshoring has become increasingly popular as more companies turn to Mexico to relocate operations closer to their customers. By moving their facilities closer to the US, these companies can simplify their logistic systems and reduce supply chain disruptions.
Mexico has 14 free trade agreements that give it a competitive advantage to establish its products across different markets worldwide. However, the country still has significant potential to increase its exports, which it could do by boosting its relationship with Argentina and Brazil, says Hernández. “There is still significant potential to build agreements with Latin America regarding supply chain relocations,” he adds.
“Nearshoring has two main effects, the most illustrative is when a new company arrives in the country, builds a new plant and creates new labor opportunities. The companies that are already operating in Mexico can also
start to redirect their production capabilities to the country. In both of these scenarios, the country’s automotive sector grows,” says Rene Mendoza, National Coordinator, Mexican Industry Supply Chain (CAIpM).
Nearshoring, together with the recent ruling in favor of Mexico and Canada’s Rules of Origin posture by a USMCA dispute panel, have helped Mexico confirm investments totaling US$15 billion just during the latter half of 2022 and the first few months of 2023. Experts concur that a substantial portion of these investments followed the favorable response from the USMCA dispute panel, as reported by MBN.
Guanajuato is the top non-border exporting state, which highlights the quality of its labor force and manufacturing abilities. “Guanajuato has access to 60% of the country’s population. Moreover, 70% of the country’s foreign trade is carried out in this area, from which companies have access to 80% of the national market,” said Hernández. However, there is still much room for growth, he adds. In the last 15 years, the region has attracted over 500 global companies, he adds, giving a clear example of the potential of the region.
Both companies coming to Mexico and those already in the country are heavily investing in electromobility. According to Alberto Bustamante, p resident, INA, Mexico’s automotive industry is anticipating to produce 142,000 EVs by the 4Q23, a nearly 50% surge from last year’s production levels. If this figure is reached, Mexico will reach almost 1 million domestically assembled EVs.
Many players will play a key role in achieving these goals, including Guanajuato, which plays a critical role in Mexico’s automotive sector. The state has four vehicle assembly plants, the highest number of such plants in the country, according to Guanajuato’s Inland port. These plants include: GM’s Silao Complex, where models like the Chevrolet
Cheyenne, Chevrolet Silverado and GMC Sierra are assembled; Honda’s Celaya plant, which has manufactured cars such as the Honda fit and the HR-V; Mazda’s Salamanca plant, where models such as the Mazda 3 sedan, Mazda 2 (hatchback and sedan), and the CX-30 SUV are produced; and Toyota Motor Manufacturing Guanajuato, the state’s most recent assembly plant, which produces the Tacoma pickup. The Bajío region also has a unique and privileged location that gives the region direct access to 80% of the Mexican territory.
The region is actively helping automotive companies to have a smooth transition toward greener and more sustainable operations, as most of the state’s automakers and auto parts companies are already starting this transition. Even the companies focusing on internal combustion engine (ICE) vehicles are expected to gradually
transition to electric-powered vehicles by 2026, according to Hernández.
Guanajuato, which is responsible for a quarter of Mexico’s total light vehicle production, has 46 industrial parks, with the automotive industry playing the most important role in the creation and development of these facilities. The triple helix model has played a key role in supporting the growth of the region’s automotive industry, says Hernández, so it is critical that all three pillars understand the needs of the other players.
Guanajuato also has an attractive talent pool, with over 6,000 engineers graduating every year from numerous public and private universities with degrees compatible with the automotive industry. This highlights the state’s commitment to investing in the talent necessary to develop the region’s automotive sector.
