IMPACT REPORT
The industry is undergoing a major transformation that is reshaping all its segments, from manufacturing to sales and the aftermarket. Despite the numerous disruptions that the pandemic brought, players across the sector continue innovating and investing, maintaining the industry’s position as a major contributor to the country’s economy.
With connectivity, autonomy, shared mobility and electrification as the main drivers of change, the Mexican automotive industry continues innovating to stay ahead and remain a global leader in the sector. While the supply chain stabilizes its operations, players from all tiers are being forced to adopt the new trends in manufacturing technology and automation, as they also address the new demands of Tier 1s and OEMs. In addition, technology companies are playing an increasingly important role within the automotive value chain, providing safety, infotainment and digital dashboard innovations.
Amid this historic time within the automotive sector, local and international industry leaders met at Mexico Automotive Summit ECHO 2022 to discuss the main trends, challenges and opportunities that the industry is facing.
3C Metrology SA de CV
3D MARKET
AASA/MEMA
Abitat Construction Solutions
Accudyn
Agencia Pro San Luis
Alian Plastics
AMDA
AMIA
AMT
Ance
ANPACT
Arbomex
Autocluster Chihuahua
autocosmos / grupo zapata
Automotive Aftermarket Suppliers Association
Automotive Cluster of San Luis Potosí
Automotive Solutions
Axon' Cable
B & L Imagen, S.A.
Beat
BOCAR Group
BorgWarner
Boston Consulting Group
Brella Ltd
Bridgestone
Camcar Grupo Automotriz
CANACINTRA PUEBLA
CAPIM
Car Fast Automotores
Center for Investment & Trade Sinaloa
Cimatic de México SA de CV
CLAUZ
• Cluster Automotriz de Nuevo León, A.C.
Cluster Automotriz GIRAA, A.C.
Constructora INSUR
Continental
Contitech
Cushman & Wakefield
Daimler Truck Mexico
Dassault Systemes
Deloitte
DHL Supply Chain
DICKA LOGISTICS
Dow Quimica Mexicana
DSV AIR & SEA MEXICO
Edrive
E-DRIVE
Embajada de Austria - Oficina Comercial
Engie
Epic Games
Ericsson
ERM
Essex Weld Solutions
Estafeta Mexicana
Evonik Industries de Mexico SA de Cv
Fehrer Automotive
FORVIA Faurecia
GALNIK, S.A.
GARANTIPLUS MEXICO
General Motors
GEODIS
Gobierno de Ontario, Embajada de Canadá en México
Grupo PAE
GTO Automotive
H+K Strategies
HALDEX
Hamburg Sud
HK Strategies
Hogan Lovells
Horizon Auto Logistics
Iberdrola
IDOM
INA - Industria Nacional de Autopartes
IND
Industria Nacional de Autopartes
INFINITI
Infor
Institute of Advanced Materials for Sustainable Manufacturing, Tecnológico de Monterrey
Instituto de Tecnologías Estratégicas para la Inteligencia de Negocios
Jaguar Land Rover Pedregal
JATO Dynamics México
JD Power
JLR
KASO & ASOCIADOS SA DE CV
KAySER AUTOMOTIVE SySTEMS S EN C
Kelly
Kenworth
KERN LIEBERS MEXICO
Kia
KIEKERT DE MEXICO
Kimberly
KPMG
Lavartex
LLyC
Logicalis
LONGi Solar
Maqma
Maserati
Masterfoam Group
Mayoreo López Díaz
09:00 MATERIAL CHOICES FOR THE CAR OF THE FUTURE
Moderator: Felipe Villeral, Alian Plastics
Panelists: Sebastián Romo, Skala Ventures Carlos Gómez, Continental José Luis Treviño, Metalsa Alex Elías Zúñiga, Tecnológico de Monterrey
09:45
DRIVETRAIN TRANSFORMATION: EV GROWTH IN MEXICO
Moderator: Mark Sánchez, ANVES
Panelists: David Zambrano, Maserati Mexico, Rolls-Royce Motor Cars Mexico Enrique Mendoza, Beat México Alfonso Reyes, ZF Mauricio Rosales, Zeiss
11:30
FACING DISRUPTION: PROCUREMENT STRATEGIES
Moderator: Daniel Hernández, Queretaro Automotive Cluster
Panelists: Nathaniel Kenninger, Boston Consulting Group Xavier Ordóñez, Deloitte Paris Hirschberg, Daimler
12:15
USMCA: THE STATE OF THE INDUSTRY’S INTERNATIONAL RELATIONS
Speaker: Fausto López, Volkswagen
12:30 THE END OF JUST-IN-TIME: CHANGING MANUFACTURING TACTICS
Moderator: Mónica Doger, CLAUZ
Panelists: César García, Transplace Jonathan Albanil, Dicka Logistics Carlos Canseco, CILQRO Adrián Uvalle, Toyota Motor Manufacturing Boris Franchomme, SPARX Logistics
15:00 INDUSTRY 5.0: NEW REVOLUTION
Moderator: Marco Antonio Galindo, KPMG Mexico
Panelists: Francisco Solano, Logicalis NoLA Keiichi Harasaki, TCS Miguel Saldamando, CEAT Ricardo Anaya, Qualcomm Mauricio Blanc, Omron Mexico
16:00 SALES FLOOR: NEW DEMANDS RESHAPING DEALERSHIPS
Moderator: Guillermo Rosales, AMDA
Panelists: Roberto Villalobos, OLX Autos Daniel Esponda, Odetta Jaime Pedraza, Automotive Solutions
17:00
R&D IN MEXICO: THE ERA OF MINDFACTURING
Speaker: Karla Góngora Rueda, Forvia
09:00
BUILDING THE CAR OF THE FUTURE: DESIGN, INFOTAINMENT AND CONNECTIVITY
Moderator: Ricardo Apaez, CLAUT
Panelists: Sampo Hietanen, Maas Global Mónica Aceves, Continental México
Heiko Wenczel, Epic Games
Fidel Vaca Reyes, Forvia Gerardo San Román, JATO
10:00
HOW REAL-TIME TOOLS TRANSFORM INFOTAINMENT
Speaker: Heiko Wenczel, Epic Games
12:00 LOGITECH SOLUTIONS FOR AUTOMOTIVE
Moderator: Mónica Mendoza, GIRAA
Panelists: Gilberto Rivera, DSV Fernando Ardura, Traffilog Alejandro Raya, DHL Supply Chain Milton Magos, UPS Supply Chain Solutions
13:00
THE FUELS MAKING ICE VEHICLES SUSTAINABLE
Moderator: Miguel Ogazón, ANPACT
Panelists: Óscar Ruiz, Daimler Truck México Javier Valadez, Kenworth, PACCAR Andrés Bayona, AMGNV
15:00
15:15
MEXICO’S AUTO PART INDUSTRY: THE PATH TO REMAIN A GLOBAL LEADER
Speaker: Alberto Bustamante, INA
THE AUTOMOTIVE REVOLUTION: ADAPTING GLOBAL TRENDS TO THE LOCAL MARKET
Moderator: Alberto Bustamante, INA
Panelists: Nazareth Black, Zacua
Raúl Peñafiel, Jaguar Land Rover Mexico e Importadores América Latina Miguel Barbeyto, Mazda
16:00
THE RIGHT TO REPAIR: ACCESS TO VEHICLE DATA
Speaker: Ben Brucato, Automotive Aftermarket Suppliers Association
INNOVATION IN MATERIAL TECHNOLOGY: KEY FOR THE AUTOMOT IVE SECTOR
As sustainability practices and policies take hold, automotive clients are demanding new solutions to new challenges. In the automotive industry, materials play a critical role in the deployment of green solutions, so automakers are searching for more advanced building materials to boost fuel efficiency and performance, while providing more cost-effective and safer vehicles.
Materials such as steel and metal alloys were the standard for the sector, but automakers have not shied away from exploring alternatives. “Material science has always been present in automotive development, helping to make cars safer and more efficient,” said José Luis Treviño, Vice President of Strategic Planning, Metalsa. The incorporation of these new technologies is quickly becoming the new standard, as it directly reduces the weight of a vehicle.
There is a direct correlation between advances in material sciences and the optimization of the manufacturing processes. This link has made new elements such as aluminum alloys grow in demand, especially as EVs need to be lighter to counterbalance the weight added by the batteries. By the next decade, up to 20 percent of vehicles will be made of aluminum, said Treviño.
structures can be coupled with an evergrowing connection between car and user.
These new opportunities represent diverse challenges for the industry. In the future of materials, sustainability of the entire supply chain is key for both consumers and automakers. Companies must know and understand their carbon footprint throughout their entire supply chain.
“Sustainability is the future of materials. We must become more environmentally friendly in our material choices and strive for circular processes,” said Carlos Gómez, PurchasingSQM Director, Continental Mexico.
This creates many opportunities for the Mexican automotive industry. As supplier development is key to reduce the carbon footprint, many companies are now entering the country thanks to its privileged geographical location next to the US, one of the most important economies in the world. Through this expansion, companies must become environmentally friendly and strive for circular processes in the production of the materials of the future, said Gómez.
This innovation requires highly qualified talent, creating large opportunities for engineers. Universities play an essential role in the development of the industry, as they provide the talent needed to advance.
“Technology allows us not only to increase vehicle efficiency and sustainability but also safety through automation,” said Gómez.
The Evolution of Manufacture
More and more solutions will be demanded for the new materials. For example, the industry is now asking how can the batteries utilized in EVs dissipate the heat they produce, as well as how the electronic
Additive manufacturing (AM) can help automakers to find the solutions they need and to produce lighter pieces. While this technology has existed since the 1980s, the democratization of 3D printing has allowed for major advances in the production network of parts for trucks and specialized vehicles, said Sebastían Romo, Managing Partner, Skala Ventures. However, it is important to consider this technology not
“Material science has always been present in automotive development, helping to make cars safer and more efficient”
José Luis Treviño
Vice President of Strategic Planning | Metalsa
as a replacement but as a complement that adds value, especially during supply chain disruptions, added Romo.
The industry must make efforts to seek new ways to provide for better and more efficient materials that allow for a more efficient and sustainable sector. Partnerships must also strive to provide better security for users.
“We need to investigate what new materials can be developed so that we do not all depend on the same material, we must be open to reinvent ourselves day by day,” said Gómez.
“We need to investigate what new materials can be developed so that we do not all depend on the same material, we must be open to reinvent ourselves day by day”
Carlos GómezPurchasing-SQM Director | Continental Mexico
nanotechnology to the automotive industry an d others.
Nanotechnology also allows for the generation of advanced materials that can be scaled up for mass production, while at the same time brings improvements in safety-related matters as every step to elaborate nanotechnology materials must be certified by the industry. 3D printing and sustainability are issues that universities are already taking into consideration to translate the possibilities that nanotechnology offers into real world applications, explaine d Zúñiga.
Nanotechnology will also play an essential role in the future of materials, as it can target specific problems. “It gives us the ability to manipulate at molecular levels the structures of materials and add other desired functionalities,” said Alex Elías Zúñiga, Research Group Leader of Nanotech and Device Designing, Tec de Monterrey. The university recently opened a program for advanced materials for sustainable manufacturing to bring
The industry’s future relies on material technology so the key players in both the private and public sectors must keep betting on sustainability and security. All players contribute to a better and more secure future. Automakers cannot survive without the right suppliers, logistics and employees, which is why collaboration is key to ensure the success of the automotive industry. “Innovation and technology development cannot happen without continuous investment in scientific research,” said Felipe Villareal, CEO, Alian Plastics.
“All advances in materials has helped them, especially structural materials, to improve safety and lightness throughout the history of the automotive industry,” said Treviño. The industry requires innovation to provide a better future for both the automotive industry and the planet, adde d Treviño.
INFRASTRUCTURE, CONSUMER READINESS UNDERPIN EV TAKEOFF
Mexico’s emerging electric vehicle (EV) market has continued to grow, seemingly with greater interest at the federal level, which introduced several incentives to boost their rollout. These policies have served to signal to the private sector a willingness to support the successful rollout of EVs, despite important barriers including limited supporting infrastructure and little certainty on returns, according to industry leaders. Nevertheless, Mexico counts with a strong underlying network infrastructure, so “investors
should keep an eye on this as a developing opportunity,” according to ARCADIS.
“Mexico will be an important part of international electromobility and will continue to spearhead the Latin American automotive industry,” said Mark Sánchez, President, National Association of Electric and Sustainable Vehicles (ANVES).
Electromobility is a rapidly advancing trend being pushed by governments across the
world, as they strive to address one of the greatest contributors of greenhouse gas emissions: transportation based on internal combustion engine (ICE) vehicles. In total, ICE transport accounts for 21 percent of global carbon emissions, which makes it the largest emitting sector in many developing countries, according to the World Economic Forum. In the face of recurring and increasingly devastating extreme weather events, this data has helped propel a public-led interest towards tackling transport emissions. The proliferation of incentivizing EV policies has marked the beginning of Mexico’s “inevitable” transition towards electromobility, but its realization will require public-private collaboration, as reported by MBN.
ANVES has been working with the private and public sector at the local and federal level to establish an official standard for the conversion of ICE vehicles into 100 percent EVs. This is a primordial step because “a challenge to the expansion of mobility electrification is that combustion cars remain more affordable than electric vehicles,” said Enrique Mendoza, General Manager, Beat Tesla.
Throughout this negotiation process, the federal government needs to rush the development of the National Electric Mobility Strategy in order to eliminate the decision barriers that limit the acquisition of an EV, said Arcadis Global EVCI Market Report 2022. Central elements of a successful EV rollout include the development of supporting infrastructure like EV charging infrastructure (EVCI) and consumer education campaigns to encourage their participation, according to industry leaders.
“In Mexico we need a cultural change that allows us to lose our fear of EVs and to trust in technological advances,” said Alfonso Reyes, Director General, ZF Powertrain Modules Sal tillo SA.
Despite a concerted effort to bridge the electrification gap on behalf of public and private players, there are still extraneous elements that threaten to hamper Mexico’s intended transition, such as its limited access to raw materials. Over the past three years, manufacturers have been affected by the disruption of the production and distribution of raw materials like steel and lithium in China and Russia. While there have been efforts to reorganize global supply chains with the adoption of technology applications, sustained complications threaten to curtail “the electrification wave down drastically from one moment to the next,” said Mauricio Rosales, Carbody Sales Manager IQS-MX, Zeiss Mexico. Nevertheless, confident in the market’s selfcorrection, private players have mobilized to capture this growing market through the production and offer of EVs in different segments.
“EV supply is growing in different segments, offering more accessible options for diverse purchasing powers,” s aid Reyes.
Within this early market space, Mexico’s “premium segment is the one buying more EVs. These are the brands that have managed to bring more fully electric vehicles to the market,” said David Zambrano, Operations Director, Maserati México and Rolls-Royce Motor Cars México.
BUILDING RESILIENT SUPPLY CHAINS THROUGH COMMUNICATION, ALLIANCES
Automotive players are transforming their procurement strategies to face the supply chain disruptions caused by international challenges. New communication strategies and partnerships are being implemented to make the supply chain more resilient, as adapting to emerging challenges will allow Mexico’s automotive industry to transform this crisis into an opportunity for growth.
Before the pandemic, the industry was already experiencing significant challenges regarding sustainability and technology. The COVID-19 pandemic later brought shortages of raw materials and end products. “Raw material shortages and disruption in supply chains have become the main challenges for the recovery of the automotive sector,” said Daniel Hernández, Director General, Queretaro Automotive Cluster. Many troublesome factors are still converging and forcing players in the supply chain to adapt to withstand the changes that the industry is facing.
The sector is facing unprecedented problems, said Paris Hirschberg, Head of Purchasing, Daimler Truck and Bus Mexico. The effects of macro challenges such as the COVID-19 pandemic, the Russia-Ukraine conflict and the trade war between the US and China have led automotive companies to face shortages and high costs. This hostile trade environment is forcing automotive players to find new strategies to strengthen their supply chain and make it more resilient.
To achieve this, suppliers need to transform the way in which they communicate with clients. Suppliers must be transparent
regarding their capabilities to implement resilient strategies in the face of supply chain disruptions, said Nathaniel Kenninger, Principal, Boston Consulting Group.
Additionally, communication has to be thought of in two directions: operational and strategic. Operational communication should not focus on the “if” but on the “when,” allowing suppliers to be ready for any unforeseen challenge and approach OEMs with options to solve the problem, rather than just transferring the responsibility to manage the crisis. Strategic communication focuses on understanding customers and their main needs by asking questions.
Moreover, companies must rely on good strategic partnerships as suppliers are now considered business partners. “Not all disruptions are created equally. Different challenges will require different solutions and companies, thus the relevance of creating strategic partnerships and remaining agile,” said Hirschberg. However, the opportunity to create synergies and strategic partnerships is not the same for all players in the market, according to Kenninger. Those who were already prioritizing alliances before the pandemic will be the ones with more advantages.
By implementing these strategies, crises can become opportunities for the automotive supply chain, specifically in Mexico. “Supply chain disruptions represent a great opportunity for Mexico to develop a local supply chain to substitute imports,” said Xavier Ordoñez, Supply Chain Leader Partner, Deloitte. “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,” he added.
Meanwhile, the implementation of the new free trade agreement between Mexico, the US and Canada (USMCA) will be crucial for
“Raw material shortages and disruption in supply chains have become the main challenges for the recovery of the automotive sector”
Daniel Hernández Director General | Queretaro Automotive Cluster
the Latin American country. “Regarding the USMCA, Mexico is going to be a huge winner,” said Hirschberg. In this new treaty, the regional content of light vehicles was increased by 12.5 percent. In addition, new rules have been incorporated for Tier 1 providers that are now required to boost regional content from 63 percent to 75 percent. These changes are increasing the need to find and incorporate Tier 2 providers in Mexico, said Manuel Montoya, Director, Cluster Automotriz de Nuevo León (CLAUT ), to MBN.
For a Tier 2 to leverage this opportunity, it needs to select the niche and product in which it needs to be truly competitive, said Ordoñez. Also, the company has to focus on partnerships specifically thought for the electric and hybrid vehicle markets, which are transforming the automotive industry as sustainability becomes the main driver of the sector.
USMCA BRINGS NEW CHALLENGES TO MEXICO’S AUTOMOTIVE INDUSTRY
Mexico has significant experience with international agreements, as it has numerous free trade agreements (FTA) with countries in Oceania, Asia, the EU and the Americas. However, most of Mexico’s exports head to the USMCA region and the treaty, while allowing trade to grow, has also caused issues that must be addressed.
The automotive industry also counts with 28 years of experience exporting across the world, while adhering to the different rules of origin that each agreement demands, said Fausto López, Director of International Treaties and Customs, Volkswagen Mexico.
“The automotive industry also counts with 28 years of experience exporting across the world, while adhering to the different rules of origin that each agreement demands”
Fausto López
Director of International Treaties and Customs | Volkswagen Mexico
“Sustainability has always been a challenge for the sector and will continue to be for the next five years, especially in Mexico,” said Kenninger. Although Mexico’s president has committed to increase production of EVs by 2030, incentives are still needed so Mexico can achieve this goal. In the future, Mexican suppliers will have to be prepared for changes in the measurement of emissions and other sustainability priorities. Consequently, Mexico has to rely on technology, which has become essential to push supply chain integration and logistics to a new level.
Technology helps businesses improve and make better strategic decisions, granting them faster access to information to increase competitiveness. Although technology offers multiple benefits, many are still reluctant to embrace it, which sometimes stops companies from investing in it.
Mexico’s privileged geographical position opens the door to trade with two of the most important economies around the world: the US and Canada. These three countries have had a long history in doing business. The North American Free Trade Agreement (NAFTA) provided a trilateral bloc in North America and created a freetrade zone where tariffs were reduced.
During former US President Donald Trump’s administration, the US renegotiated NAFTA and changed the tariffs of steel and finished vehicles that would be applied to Mexico.
Since its entry into force on July 1, 2022, the new treaty has caused a constant back and forth between the three countries.
During the negotiations of what would be the USMCA, the US Trade Representative (USTR) presented some issues that were found to be “controversial,” said López who called them “poison pills.” The issues were: a “Sunset Clause,” which demands a review of the USMCA every five years; “seasonal tariffs” for agricultural goods; the Dispute Settlement
Transportation of goods within the region; modifications to the textile sector rules; and the rule of origin for the automotive industry.
Before the USMCA, Mexico was seeking to reduce regional content in the automotive sector. But this changed with the USMCA, which demands an increase in regional content. NAFTA required a 62.5 percent or more of regional value content based on the net cost of the vehicle. However, the required regional value content increased to 75 percent based on the vehicle’s core and key parts. Automakers must also comply with metal and aluminum requirements.
Changes in the regional value content per vehicle triggered a panel for a state-to-state dispute. “The US is currently subject to a dispute panel on the core and key parts issue according to the auto trade agreement with Mexico and Canada,” said López.
On January 6, 2022, Mexico called for a meeting of this panel, Canada joined later.
The panel is convening and a resolution is expected for November 2022. If Mexico and Canada win, the US will be forced to start the new rule of origin calculations in 45 days.
Mexico’s trade partners have also called for consultations to address the country’s energy policies, claiming these policies favor local state-owned companies in violation of the USMCA. If the consultations do not reach a solution within 75 days, they will enter a solution panel that Mexico is most likely to lose, said López.
The USMCA also includes a rapid response mechanism, which six companies have already used to denounce alleged violations of labor laws. These businesses have 45 days to reach a remediation with the local government and later with the labor committee of the USMCA. If one of these steps fails, a panel of discussion is brought up and if no agreement is reached, sanctions for both the country and the company are applied.
ENDING JUST-IN-TIME REQUIRES INDUSTRY INTEGRATION, COM MUNICATION
Over the past three years, schedule reliability for maritime shipments deteriorated from 80 percent in early 2020 to a mere 30 percent by the end of 2021. As public and private stakeholders
in Mexico look to reorganize domestic supply chains to give them the capacity of just-in-time deliveries, stakeholders will need to participate in the integration and sustained communication needed to give
all parties the visibility needed, according to industr y experts.
Just-in-time is turning into a “just-in-case scenario,” as evidenced by the multiple disruptions, including a global pandemic, a regional war and labor strikes. This latency has had a significant domino effect throughout the supply chain, leading to significant congestion at ports, extended wait-times for unloading, lack of personnel and delayed terrestrial transportation. Three years later and this problem has persisted for many countries, including those in the EU and Latin America. Therefore, “when attempting to control and solve for bottlenecks, one must assess the country of origin, the mode of mobility and finally all participating actors and institutions,” said Boris Franchomme, Managing Director, SPARX Logistics.
Just-in-time can be summarized as complete transit integration throughout the supply chain and visibility of global risks. Altogether, this vantage point affords companies the ability to monitor, assess and control for identified risks at precise points along their supply chains. In other words, “it is unnecessary for companies to reconstruct their entire supply chains when data and risk-management can easily help companies flag and control both external and internal supply chain bottlenecks,” said Adrián Uvalle, General Manager, Toyota Motor Manufacturing de México.
Delving deeper, “just-in-time deliveries depend on four key indicators: customer service, optimal inventory level, forecast accuracy and logistics costs,” outlines Carlos Canseco, Director, CILQRO. These indicators will prove to be fundamental, as supply chains adapt alongside the growth
INDUSTRY 5.0: NEW REVOLUTION
The world, and the automotive sector, is transitioning from Industry 4.0 toward Industry 5.0, which puts people and sustainability at the center. Consequently,
of nearshoring in Mexico. This trend is forcing supply chains to shorten their 2227 days transit cycles to 3-4 days maximum. Furthermore, actors must adapt to the volatility and availability of the components, new logistical corridors and new legislative compliance standards. Striving towards the realization of these capacities along regulated supply chains could give Mexico’s automotive supply chain the elasticity and efficiency it needs to push the sector towards greater competitiveness.
Expanding further on greater nearshoring from the US and Canadian markets, there are fundamental challenges in completing just-in-time deliveries, starting with accessibility to capacity. Second, companies need access to sufficient drivers, which are underpinned by fierce competition, geographic limitations and macroeconomic conditions. Finally, the great imbalance between the import and export of goods between Mexico and its USMCA partners; closely tied to this are the legal documents and requirements at national borders. This list is by no means exhaustive, but helps paint the terrestrial context of completing and striving towards real-time delivery between country jurisdictions. Moving forward, “technology will play a fundamental role in enabling stakeholders the total visibility needed to make supply chains efficient between national borders,” said César García, Regional Sales Director, Transplace.
Looking towards the future, and considering the COVID-19 pandemic, “stakeholders along the supply chain will have to demonstrate a sustained willingness to communicate with other industry participants, openness to new partners and new channels,” said Jonathan Albanil, COO, Dicka Logistics.
the automotive industry is seeking to achieve a synergy between machines and human talent. However, there are still challenges to overcome to reach this goal,
such as cybersecurity threats and the disparate digital transformation.
The speed at which new technologies are being developed is forcing companies to be alert to sudden changes. “Over 200 years passed between Industry 1.0 and 4.0. The gap between Industry 4.0 and 5.0 was only 10 years,” said Marco Galindo, Managing Partner, KPMG Mexico.
Industry 4.0 is the convergence of new technologies in manufacturing. It is characterized for an increase in automation and the use of smart machines, smart factories and the use of informed data to strengthen the value chain, according to IBM. “Mexico has managed to implement Industry 4.0 in different industries and regions to an extent, leaving a broad opportunity to consolidate the digital transformation,” said Keiichi Karasaki, Head of Business 4.0 & Industry Solutions for LATAM, TCS.
Meanwhile, Industry 5.0 aims to merge the expertise of humans with the capabilities of intelligent machines. Industry 5.0 requires a broader perspective to exploit human talent and use technology to leverage this capability. “Industry 5.0 is more friendly with people, providing them greater adaptability and resilience,” said Mauricio Blanc, Director Customer Services Americas o, Omron.
have a transformative impact in society since it will require workers to upskill, as reported by the European Commission.
“The most repetitive tasks that demand effort will be done by cobots and humans will bring creativity and experience,” said Karaski.
Industry 5.0 puts people at the center of production, shying away from mass production to focus on customization. “Before, customization was done in batches. Now, the industry is looking to create unique products, which is a great challenge,” said Karasaki. To successfully adapt to customization, companies must listen closely to their customers’ needs.
“Communication is key with customers. Personalization creates value and is achieved through listening to customers. All technologies will be available, but if production is done on demand and on time, we can be more efficient and better control the supply chain,” said Ricardo Anaya, Product Manager, Qualcomm.
For Industry 5.0 to unseat Industry 4.0, the use of the fifth-generation (5G) network is essential. The 5G network will support the connectivity that automation needs and the whole world is working to implement it. The 5G network is necessary to manage the needs of the next decade and the growing number of connected devices. 5G, compared to 4G, brings 10 times more capacity for downloads and uploads. It also provides 10 times less latency, which is crucial for automotive processes.
Director Customer Services Americas & Mexico | Omron
Additionally, it promotes sustainability and environmental goals through the rethinking of production processes. While Industry 4.0 was centered on profitability and productivity, Industry 5.0 promotes a human-centric, socio-environmental sustainability. Moreover, it is expected to
“The connectivity must be powerful for everything to work and for the cost to make sense. The industry is even beginning to develop its own networks. There is a trend to use a private 5G network to be able to connect everything securely where data can be protected,” added Anaya.
Although connectivity is basic, its implementation has been unequal but this is not necessarily a problem. “Connectivity is not everything, companies need a holistic
“Industry 5.0 is more friendly with people, providing them greater adaptability and resilience”
Mauricio Blanc
plan to face crises and react to large amounts of collected information,” said Blanc.
The security of information within Industry 5.0 has to be ensured and cybersecurity plays an important role as the management of data gains more relevance. “Data analysis is a powerful tool when the objective is
clear. The power of data processing enables decision-making regarding future business transformations. This is an issue that is still addressed in a general way in an industry and demands that the computation and data storage layer is working perfectly,” said Francisco Solano, Head of Technology and Portfolio, Logicalis.
DIGITIZATION, CUSTOMER EXPERIENCE ARE RESHAPING VEH ICLE SALES
The automotive industry faces arguably the biggest transformation in its history, impacting all players, from the supply chain to OEMs and dealerships. Digitization, technology and mobility trends, in addition to new consumer demands, are shaping vehicle sales toward a more customeroriented, online experience. Meanwhile, second-hand vehicle sales continue to grow and digitize in the Mexican landscape.
“The world has become omnichannel. The convergence of the physical world with the digital world is a reality. In the second-hand vehicle market, 67 percent of customers who bought a car first saw it online and confirmed the decision when they saw it in person. The car is a good that people want to see physically in order to buy it, but in the future, 100-percent digital sales will also play an important role,” said Roberto Villalobos, Country Manager, OLX Autos.
The traditional sales model, which still prevails in the Mexican market, is through dealerships. In 1898, a salesman from Detroit obtained a franchise from General Motors Corporation to sell steam autos. Over 120 years later, the dealership model
still dominates the market, with OEMs and dealers operating as independent or even nonaffiliated legal entities. Automakers sell their products to dealers, and dealers, through their own stores, sell directly to customers.
The dealership model gives OEMs more liquidity because they are paid before the vehicles are sold to end customers. It also allows automakers to distribute vehicles through the network quickly, enabling them to focus on expanding their manufacturing capacity and upgrading technology, which has become increasingly important for customer preference.
“The [automotive] industry has existed for over 100 years, and only in this new millennium it started to change substantially. Now, investments are changing considerably. The centralized one-stop-shop automotive distribution model is increasingly at risk. We see fewer dealerships and tighter margins,” said Daniel Esponda, Founder and CEO, Odetta.
The unending challenges that the automotive industry has faced since the pandemic, from
semiconductor shortages to logistics and supply chain constraints, resulted in historic lows in vehicle production across the world, reducing new vehicle sales dramatically over the past two years. As the sector continues facing the consequences of the pandemic, some may fear that entire segments or players may disappear due to disruption and innovation, said Guillermo Rosales, Director, AMDA. However, other players will see the situation as an opportunity to innovate and take advantage of the new circumstances and technologies, he added.
OEMs and dealerships face different challenges. While some automakers may see tech giants as competitors due to the changing customer demands and increasing importance of the in-vehicle experience, dealerships could see OEMs as possible threats due to the digitization of vehicle sales, which enables direct sales from OEMs to end customers.
The situation, however, must be managed jointly to keep the business running and innovative, said Jaime Pedraza, CEO, AutomotiveSolutions: “Mobility-as-a-service and direct sales have become a threat to the traditional automotive market. OEMs and dealerships must work together on a robust customer experience strategy. Clients must be served in an excellent, efficient way.”
While the disruption and low-vehicle production impacted OEMs and dealerships negatively, it opened opportunities for players within the second-hand vehicle market. Used cars have always represented an attractive offer in terms of price but, historically, the second-hand vehicle market has faced several issues, mainly high levels of risk. Although traditional dealerships offer a buy and sell market for these
vehicles, clients often prefer to remain in the informal market, where they can receive a higher price when reselling their vehicle.
Customers have become more informed thanks to technology, said Esponda. “The process of discovery has changed substantially. The information is online and accessible to most people. Buying a car represents one of the most important purchases for Mexicans. It is a crucial financial decision,” he said.
Mexico has experienced a massive e-commerce boom over the past three years. The pandemic boosted e-commerce adoption and growth in the country. In 2020, online shopping grew by 81 percent, according to the Mexican Association of Online Sales (AMVO). In 2021, e-commerce grew by 27 percent. Online and omnichannel transactions are shaping the second-hand vehicle market, while increased degrees of technology and data analytics have made the inspection of cars faster and more secure than ever before.
“The entire buy and sell process starts with a good acquisition. If we buy a good secondhand car, the business becomes safer and more profitable for everyone involved. Documentation also plays a key role in Mexico, in addition to a deep, professional inspection of the mechanical and physical conditions of the car,” said Villalobos.
Dealerships and second-hand vehicle e-sellers have strengthened their product offering through extended guarantees, insurance and financing alternatives for clients offered by in-house companies or through partnerships and strategic alliances with different players in the market. “We offer a one-year guarantee for our secondhand vehicles,” said Villalobos.
Clients must have a wide range of options when it comes to financing and additional services, such as insurance, said Esponda: “The client must be given all options in one single request, giving them the power to decide.”
“The situation, however, must be managed jointly to keep the business running and innovative”
Jaime Pedraza CEO | Automotive Solutions
Global OEMs have started a transformation from automakers to mobility and technology providers. This shift from hardware sellers to solution providers has led OEMs to focus on technology and in-vehicle and cabin experience, while offering additional over-the-air updates and exploring new business models.
In the near future, “OEMs’ collaborations with dealerships will remain crucial. Vehicles will be associated with much more than taking people from point A to point B. In the future market, clients will be able to buy an entire package of software from their car brand, in addition to several other services,” said Pedraza.
FORVIA WILL USE MEXICAN RESEARCH TO REACH CARBON NEUTRALITY
After the successful acquisition of HELLA by Faurecia on Jan. 31, 2022, the resulting group, Forvia, became the seventh global largest automotive supplier. The company, a global leader in automotive technologies, is focusing on reducing its carbon footprint to net zero through numerous initiatives, which include Mexican R&D.
To implement its global sustainability strategy, the company began investing in R&D at its manufacturing locations. “Ten years ago, we launched an R&D center in Mexico for both exteriors and interiors. This has turned the country into a protagonist in the company’s innovation projects,” said Karla Góngora, R&D Director, Forvia. Traditionally recognized for its manufacturing operations, Mexico has become a promising land for R&D and engineering operations. “Apart from its excellent manufacturing quality, Mexico has strong potential to develop innovation
and design capabilities that add value to the automotive industry,” added Góngora.
Forvia has currently two R&D centers in Mexico, focusing on seating and interiors.
In total, Forvia has 77 R&D centers around the world and invests 7 percent of its total expenses on R&D. The company seeks to achieve CO2 neutrality in its internal emissions by 2025 to fight climate change.
“Climate change, bad air quality and vulnerable ecosystems affect all people and represent a growing threat for humanity,” said Góngora. This is why the company is prioritizing the fight against climate change by implementing a recycling culture and circular economy, she added.
The group combines cost-effective growth and innovation to transform the automotive industry. It is focusing on electrification and energy management, automatized and safe driving and sustainable and digital cabin
experiences. Forvia treats mobility as an essential tool to empower people, giving them access to opportunities and proximity to loved ones. “The challenges that impact mobility are climate change and access,” said Góngora. The company aims to be a pioneer in the mobility experiences that are important to people.
Forvia is also a responsible employer that promotes the development of all talent with a proactive focus in line with its values, said Góngora. Diversity and inclusion are two pillars of the company, which aims to
have 35 percent of women in directive and leadership positions by 2030. In the past four years, the company increased its female talent by 13 percent. In 2021, “37 percent of the manager, director and professional hirings were women,” said Góngora.
These achievements have been made possible thanks to its inclusion projects, which include the “Back on Track” initiative. This project seeks to help women rejoin the automotive industry after a long pause from work, which are mainly caused by family reasons.
DESIGN, INFOTAINMENT AND CONNECTIVITY: CUSTOMER’S TOP PRIORITIES
The automotive sector is facing one its biggest disruptions in history, as customers increasingly prioritize personalization, interconnectivity and infotainment in their vehicles. With these new challenges, the industry must find new solutions that satisfy clients, automakers and all the actors involved in the mobilit y sector.
The industry is transforming at an accelerated pace. “To forecast for the future, we must look back to how we perceived vehicles about five or six years ago. Not only vehicles have shifted dramatically, but the concept of mobility as a whole has changed,” says Fidel Vaca, Senior Director of North America’s Interior Programs for Mexico, Forvia.
Digital disruptions have impacted every single aspect of daily life, while real time technology has brought up significant changes in how people interact with their vehicle. “The car of the future will also be part of a mobility ecosystem. We cannot think of the vehicle as an isolated element,”
“The car of the future will also be part of a mobility ecosystem. We cannot think of the vehicle as an isolated element”
Mónica Aceves
Head of Research and Development
| Continental México
said Mónica Aceves, Head of Research and Development, Continental México.
The consolidation of new mega trends will require highly complex architectures, as just moving people from point A to point B will no longer be enough, said Aceves. Despite the many changes, safety will remain essential to the automotive industry, she added.
There is a large opportunity in the safety department. “Cars are going to become a lot safer thanks to technology and infrastructure advancements,” said Gerardo San Román, Head of Latin America, JATO Dynamics. New tools will also facilitate important tasks of everyday life but it is unlikely that a “one-size fits all” solution will be enough for customers. While security systems might not be considered as interesting as other functionalities, they must remain a priority for automakers and customers.
The shift toward interior, cabin and in-vehicle experience will be key, as the preferences and demands of new generations have changed. The inside of a car is increasingly resembling a living room thanks to the numerous onboard entertainment options. Cars will likely become boxes of software and hardware, allowing passengers to interact with vehicles in a non-traditional way, said San Román.
Despite the industry’s transformation, automakers still have to consider user’s emotions when buying a car, which is critical when choosing one brand over the other, explained Sampo Hietanen, Founder and CEO, Maas Global. Automakers must still continue to find ways to add value to their vehicles to stand out.
The industry is innovating in interior design, introducing interactive functionality to create a sense of ownership among customers, while simultaneously providing experiences that were previously not possible. Automobile interiors will be transformed, changing from simple spaces to sit and drive to rooms that offer everything from stores and video game consoles to fitness centers, said Heiko Wenczel, Director of Automotive and HMI for Unreal Engine, Epic Games.
Shared mobility, which is impacting the concept of vehicle ownership worldwide, is allowing new players to disrupt the automotive industry’s ecosystem, as new businesses are emerging from the opportunities that arrive with business models such as leasing or co-buying vehicles.
These new models, alongside the transformation of the vehicle’s interior, open up the possibility for car users to “regain” the time they spent in traffic, said Hietanen. On average, people spend about 90 minutes a day commuting. “Freeing” this time for other activities would be a game
changer for millions of people around the world who waste hundreds of hours a year stuck in traffic.
The large number of potential changes makes it impossible for a single company to provide all solutions in-house, so collaboration across the industry is critical. Manufacturing companies will shift toward a more digital-based business. Due to these changes, the key components of vehicles, such as brakes, engine, airbags and others, will also need to adapt to comply with the new changes in structure. “The challenge will be to understand the dynamics inside the car to provide safety for users,” said Aceves.
While most new developments are more common in high-end vehicles, these trends must permeate the entire industry, as it cannot afford to ignore the remaining 7080 percent of the market, said Vaca. This is why adaptability is essential and companies must provide a variety of products and services to the right clients.
The automotive industry has historically been successful as a closed system, but the future of mobility will likely require an open ecosystem. “In the future, the car will be part of an open ecosystem, instead of acting as the centerpiece,” says Hietanen. Vehicles will be an integral source of information, AI and machine learning will play an essential role in analyzing the data provided by vehicles, users and automakers to give a personalized customer experience.
REAL-TIME, UNIVERSAL DIGITAL TWINS: THE FUTURE OF OME’ S WORKFLOW
Original equipment manufacturers (OEMs) are being pressured on multiple fronts to change their business models to become the mobility providers they aim to become. Among numerous possible goto-market strategies, the digital twin has unique potential to accelerate industrial development.
“Real-time, universal digital twins for the creation and delivery of new content
will likely play a competitive role in the development of automotive technologies,” said Heiko Wenczel, Director of Automotive and HMI for Unreal Engine, Epic Games.
The use of synthetic reality and real-time libraries is rapidly becoming a development cornerstone in the automotive industry by significantly accelerating go-to-market cycles. Three-dimension visualization tools have advanced enough to allow for
the creation of synthetic environments indistinguishable from reality, allowing for the virtual generation and interaction with the data produced in these environments. This capacity enables OMEs to reduce costs and possible risks associated with physical test simulations.
“Knowing how you can introduce 3D workflows, especially in real-time, in any workflow will be really important to be competitive in the future,” said Wenczel.
The competitive capacity of real-time information tied with virtual simulations has been verified by early adopters, which have used it to disrupt and become industry leaders. This technology has potential to be at the core of future market disruptions, which has attracted an inflow of market participants. This is a chance for companies to introduce new trends, learn to behave differently in the market and ultimately change the way people in automotive projects work.
The Unreal Engine, a real-time 3D creation tool, owes its success to its ability to use the data generated in virtual spaces to understand and engineer social experiences. This capacity is particularly important in an increasingly digital economy, allowing companies to listen, communicate and connect directly with digital native generations. Soon, virtual spaces will be a primary target of social
listening, an untapped data mine for designdriven development.
“We live in an age of mixed reality. Not so long ago, this meant virtual reality or augmented reality were accessed via a headset or screen. Synthetic realities, often generated with artificial intelligence, have changed our perception over the past years and are becoming even more prevalent,” said Wenczel.
By extension, this technology is likely to facilitate companies’ entry into the Metaverse through the construction of internal and external facing architectures. The development of car clinics, aided by the collaboration of augmented or virtual reality, can help collaborators decide if a design works or not. Furthermore, the growing importance of human-machine interfaces facilitates the direct simulation of experiences in the same software.
Within the Metaverse, companies will be able to hold brand events and build virtual showrooms where people will be able to buy directly and transform incar connected experiences, among other possible applications. Overall, these are only foreseeable, preliminary applications that could help companies enter this market space early and build-up their capabilities before this commercial space becomes widely accessible.
“Our vision for where automotive goes next is one of a holistic open platform that covers
the entire pipeline from end to end,” reads Unreal Engine’s Automotive Field Guide.
LOGTECH BOOSTS AUTOMOTIVE INDUSTRY, REDUCES CARBON FOOTPRINT
With rising labor and fuel costs, a shrinking labor pool and growing customer expectations, logistics companies are leveraging the latest technologies to meet clients’ needs. In the automotive industry, logistics play a key role, especially when the sector faces major supply chain challenges. In these circumstances, automotive logistics would benefit from the implementation of all possible technologies, agreed industr y experts.
“All technological innovations must be applied to automotive logistics. From route optimization, traceability and fuel savings to the overall reduction of the supply chain’s carbon footprint. Logistics partners support the entire automotive sector, from manufacturing to the transportation of new vehicles and parts for the aftermarket,” said Milton Magos, Country Manager, UPS Supply Chain Solutions.
In this changing world, data analytics have played an increasingly key role in all industries, enabling companies to find trends and draw conclusions out of the information collected. The logistics industry benefits massively from big data and business intelligence, according to DataPine. The daily management of multiple shipments, weights, sizes, contact details, routes and other variables, make logistics operations very complex. Data analytics greatly simplifies these processes.
“Through different devices we collect data. Data analytics enable us to have full visibility of the operation. We have been working with data analytics to provide clients with the ideal visibility of their shipments and forecasting. Big data allows us to define which vehicles to use, which routes and times to use, among other key decisions. These
efficiencies are crucial for our automotive clients but also to final customers, who get to enjoy their products on time,” said Alejandro Raya, Vice President of Business Development, DHL Supply Chain.
Logistics involve several processes, from first-mile to last-mile. These include storage, warehousing, materials handling, packaging, inventory, transport and control. In the warehousing and handling part, AI and robotics are automating processes, collecting and analyzing information, increasing efficiency and boosting revenues.
“We use AI to incorporate other technologies and automate processes in our warehouses. In addition, AI collects data from our suppliers, such as shipping companies and airlines, and our clients. On the other hand, robotics are very effective in pick and pack processes, making them more efficient and errorless,” said Gilberto Rivera, Vertical Sales Director Mexico, DSV.
Automotive technologies, such as telematics, also play a crucial role within logistics. Vehicle telematics uses GPS technology to triangulate the position of vehicles and digital cellular networks, transmitting a range of data from the vehicle to other software and hardware systems, as reported by MBN. The transmitted data covers everything from location and vehicle diagnostics to driving style. Telematics solutions have become crucial for smart fleet management in any kind of company.
While implementing telematics is costeffective, it is important to do it correctly, said Fernando Ardura, Chief Business Officer, Traffilog: “Telematics makes businesses more profitable. With the right data collected and administered by the right people, this technology enables lower fuel consumption, which is the biggest expense in fleet management. With 4-5 percent savings in fuel, companies save millions annually, while reducing their carbon footprint.”
The scope of telematics is broad, ranging from its integration in trucks at the manufacturing plant to its use during engine production, added Ardura. In addition, telematics enables several other efficiencies while trucks are operating. “We also have access to the daily operation of vehicles. Data allows preventive maintenance, allowing companies to have vehicles circulating most of the time and save on maintenance costs, in addition to tracking drivers’ behavior and habits. More data ensures better deliveries, higher efficiencies and safer roads,” sa id Ardura.
Tech-Driven Logistics Efficiencies are Crucial for a Sustainable Automotive Industry
While the automotive industry requires efficient, timely and reliable logistics, the efficiency brought by technology not only enables better logistics; it also creates a more sustainable logistics sector, which translates into a more sustainable automotive industry.
“Logtech has evolved the means of communication, transactions, transportation and purchase of products. The phenomenon is based on the use of technologies connected to each other. Data, transportation and warehousing efficiencies translate into more sustainable operations for all industries requiring logistics services,” said Mónica Mendoza, General Director, GIRAA.
Sustainability has become part of the core business of many companies, including logistics giants. By 2050, UPS and DHL have the mission to become neutral zero in carbon emissions, from warehousing to transport. DHL already has 200 EVs in Latin America, from which 50 are deployed in Mexico. Regarding alternative fuels, the company operates 20 trucks in Mexico and 104 in Latin America, said Raya.
Sustainable logistics operations support sustainable industries, so collaboration is key to achieve a more sustainable automotive supply chain, “It is important that logistics partners and automotive
companies work together to create a more efficient supply chain. It takes all players
involved to achieve carbon emissions reduction,” s aid Magos.
SUSTAINABLE FUELS CAN MAKE ICE VEHICLES MORE SUSTAINABLE
The automotive industry is making strong decarbonization efforts to support a more sustainable future. But while most in the sector are focusing on electric vehicles (EV), others are exploring the use of alternative, sustainable fuels as transition energies to reduce the emissions of internal combustion engine (ICE) vehicles.
Sustainable fuels may smooth the transition of the vehicle fleet in many parts of the world, especially in emerging economies where the penetration of EVs has been slow, such as Mexico. Mexico City and Guadalajara, for example, have implemented electric-powered public transportation. While an interesting initiative, measures of this kind have limited impact in Mexico as electric powered vehicles for public transportation represent less than 0.01 percent of the country’s fleet, explained Miguel Ogazón, Technical Engineering Director, ANPACT.
While emission reduction often goes hand in hand with EVs, these vehicles are not the only option available. Alternative fuels such as natural gas or hydrogen represent an important option, especially in the short term. However, Mexico lacks the necessary infrastructure to fully exploit those alternative energies. The technology, ecosystem and infrastructure necessary to use these sustainable vehicles fuels are still lacking, creating bottlenecks in the system. “As we develop new technologies, the industry must take into account the ecosystem that will absorb them and its supply sources,”
said Javier Valadez, Operations Director, KENWORTH-PACCAR.
Making ICE Vehicles Cleaner Alternatives
There has been substantial progress in reducing the carbon emissions of ICE vehicles. Thanks to new technologies that allow for cleaner fuel extraction the emissions of ICE vehicles have been reduced by about 85 percent.
The EU, for example, has worked to reduce the emissions of ICE vehicles through the Euro emission standard program, which specifies the maximum amount of particles that these vehicles can release into the atmosphere. This program is also advancing alongside technology. “Comparing Euro III technologies with Euro VI, the reduction in emissions is substantial,” said Óscar Ruiz, Regulatory, Innovation and External Affairs Manager, Daimler Truck. The region is already working on Euro VII, which will ensure that emissions are measured in real time. This scalable plan aims to reach a zeroemission target in the near future.
In emerging economies, however, these technologies and regulations are still being deployed and it may take some time before they make a significant difference.
Natural Gas: Big Challenges, Big Opportunities
One of the most popular alternatives to traditional fuel is natural gas, which offers several benefits to users and automakers, from safety to savings. However, one of its main issues is its nature as a fossil fuel. For that reason, it is key for the society, government and industry to understand that it is only a transitional fuel, agree experts. But its status as a transition fuel is also leading companies to question if it is worth it to invest in it.
“As we develop new technologies, the industry must take into account the ecosystem that will absorb them and its supply sources”
Javier Valadez Operations Director| Kenworth, PACCAR
Natural gas refueling stations in Mexico grew exponentially since the COVID-19 pandemic but their growth has not been enough to meet demand, said Ruiz. Mexico now has less than 100 stations operating, which falls short in comparison to the almost 13,000 gasoline stations in the country. While few, these stations are helping the transition to sustainable fuels. “The combination of diesel or gas with hybrid technologies is allowing the energy transition,” said Ruiz. To accelerate the transition, however, natural gas promotion policies are required, he added, as it is important that associations and people understand what is involved and the benefits this fuel brings.
Natural gas is a viable alternative and fleets in large cities in the US have already seen
its benefits, especially in last mile deliveries, said Andrés Bayona, President, AMGNV. Mexico has many opportunities in this area, but they are held back by over-regulation and difficulties to obtain permits to sell natural gas, he added, which also delays the development of the necessary infrastructure.
Mexico has the market and businesses to develop this fuel but the sector needs coordination to advance, agreed experts. Alternative fuels need data-driven public policies to advance and the sector will focus on generating the data necessary to elaborate a roadmap based on infrastructure and technology. Industries, societies and governments understand that strong efforts must be made to improve air quality and reduce carbon emissions.
THE ELECTROMOBILITY TRANSITION: A PATH TOWARDS GLOBAL LEADERSHIP
Mexico’s automotive sector is undergoing a consequential transformation impelled by technological innovation and a global push towards electromobility. This inflection, combined with the expediency of the USMCA, could help the country to reach a top position in the automotive supp ly chain.
“Mexico is well positioned to become a global leader in the exportation of auto parts by displacing China and other global competitors,” said Alberto Bustamante, Director General, INA.
By the end of 2022, Mexico will have exported an estimated US$79.5 billion in auto parts to the US and Canada. This contrasts with Mexico’s US$34.8 billion in auto part imports. In other words, the USMCA has
“Mexico is well positioned to become a global leader in the exportation of auto parts by displacing China and other global competitors”
Alberto Bustamante Director General | INAresoundingly favored Mexico’s automotive industry, which still has room to grow and overtake other markets including China, the second largest provider of parts to the US. This is in direct response to the revision of the rules of origin, which disqualified many Chinese competitors and prompted a wave of investment to Mexico as automotive companies try to establish a legal presence in the Latin American country.
Mexico has a unique opportunity to capture key market segments including core parts, principal parts and complementary parts for heavy and light vehicles. This will require domestic actors to ramp up the production of these key components in a relatively tight window, a gargantuan task that is contingent on the access to raw materials and finished goods like semiconductor chips. Nevertheless, it is fundamental to the Mexican market to replace the goods that are now imported from markets in Asia and the EU. This replacement could bring Mexico an estimated US$97 million, according to data provided by INA.
Another important opportunity for Mexico is represented by the legislative approval
of the Inflation Reduction Act, said Bustamante. This revised version of the Build Back Better Bill outlines incentives aimed at promoting investment in clean energy projects. These incentives include federal credits aimed at encouraging consumers to purchase electric vehicles made in North America, so long as their price is under US$80,000 for vans and SUVs and below US$50,000 for other vehicles. Consequently, “the increase in electric vehicle exports to the US will grow the supplier chain, thus growing the auto part industry,” said Bu stamante.
However, the clarity of this opportunity is clouded by the US government’s unwillingness to recognize the rules of origin as outlined in the USMCA, said Bustamante. This disagreement prompted the Mexican and Canadian governments to motion for the establishment of a dispute settlement panel, which will discuss the US interpretation of the rules governing the regional value content calculations that must be performed for a vehicle to qualify for USMCA duty-free treatment, as reported by MBN. The final ruling of the panel will be announced by the end of 2022.
ADAPTING TO THE NEW MOBILITY, CONS UMER NEEDS
As the global automotive industry continues on its path toward connected, autonomous shared and electric (CASE) mobility, global automakers must adapt their product portfolio to the realities of the different markets where they operate. During this transition, hybrid vehicles, a technology-led cabin experience and the understanding of the local market will play a crucial role in the competition between brands, agreed industr y experts.
“Electrification is undergoing an important transformation. In addition to digitization, we are also experiencing a change in habits in terms of mobility. In recent years, these habits have changed and the insertion of technology is making having a car more of an option than a necessity,” said Raúl Peñafiel, General Director, Jaguar Land Rover Mexico.
While electrified vehicles still represent a small portion of the total vehicle sales in
Mexico, their popularity grows yearly. During 1H22, from the total 518,424 vehicle sales, only 23,026 were electrified units (HEVs, PHEVs and BEVs), representing only 4.4 percent of the total sales, according to INEGI. Moreover, HEVs remained the most popular electrified vehicle in Mexico in 1H22, with 19,226 units sold, compared with the 2,097 PHEVs and 1,703 BEVs commercialized in the country.
However, EV sales are only expected to continue growing. “In 2028, over 50 percent of vehicles globally will be hybrid or electric,” said Miguel Barbeyto, President, Mazda.
Japanese brand Mazda arrived in Mexico in October 2005 and in 2011, it decided to build a production plant outside of Japan for the first time in its history. Currently, Mazda’s complex in Salamanca, Guanajuato, is the automaker’s largest plant outside of Japan. Salamanca became a key facility for the company, reaching cumulative
production of 1 million units in 2020. Mazda also sees great potential in electric vehicles. “Electrification improves productivity, offers more efficient vehicles and lowers CO2. The entire industry is heading in that same direction,” said Barbeyto.
Globally, Mazda has a clear electrification plan, called Zoom-Zoom 2030. By that year, all models offered by the brand will have an electrified version. The automaker will also reduce carbon emissions to 50 percent by that year. In Mexico, MildHybrid Electric Vehicles (MHEVs) are Mazda’s first step toward electrification. In October 2021, the brand launched the technology with Mazda2. In March 2022, Mazda launched the Mazda3 sedan MHEV and the C X-30 MHEV.
While Mexico is still far from becoming a big market for BEVs, the country is expected to be the largest market for these vehicles in Latin America by 2026, according to Statista. In 1H22, a total of 3,170 PHEVs and BEVs were sold in Mexico, according to INEGI. In 2026, PHEV and BEV sales will amount to an estimated 18,900 units, according to Statista’s Mobility Marke t Outlook.
Although Mexico is accelerating this transition, there are still challenges ahead. While most automotive actors consider the lack of infrastructure to be the main problem, others believe that the dearth of financing and the culture of consumption is what is really hampering this transition. “There is a clash between the culture of consumption and a culture of sustainable mobility,” said Nazareth Black, CEO, Zacua. “The industry has to consider its clients more as users than as consumers and it is a challenge to create this culture from zero, she added.
Electromobility, however, could be truly be democratized through financing, said Black.
Zacua is a Mexican OEM focused on EV development. It produced the first 100-percent Mexican-supplied vehicle in history. The company started production in 2018 and that same year it released its first two models: the M2 and M3. Both models are manufactured at Zacua’s facilities in Puebla.
Improving Customer Experience: The New Objective
The greatest challenge the automotive sector faces might be addressing the demands of an increasingly informed and selective customer. “The consumer is looking for mobility. We are in the automotive industry, but we must evolve towards a mobility sector where we produce not only vehicles but also any object that can help the user to move,” said Barbeyto.
To continue progressing towards the new concept of mobility, technology is evolving rapidly. “Experiences cannot be created without technology. Before, the sector offered technology that most customers did not get to use. Now, the customer wants new experiences with technology in a usable format. Technology must be put at the service of experience,” added Peñafiel.
Jaguar Land Rover is the largest automaker in the UK. The company exports vehicles to 136 markets, including Mexico. The brand has also adopted the electrification trend in Mexico, offering a variety of MHEVs, in addition to three PHEV Range Rover SUVs and the Jaguar I-Pace, a fully-electric SUV with an autonomy of 470 k ilometers.
Overall, the sector has been forced to adapt to these rapidly evolving times.
“In this sector, we are living interesting times. One flaw of humans is that we are not aware that everything changes and currently we are living in one of the most important times of this industry. We have the privilege of being forced to change,” said Peñafiel.
“Electrification improves productivity, offers more efficient vehicles and lowers CO2. The entire industry is heading in that same direction”
Miguel Barbeyto President | Mazda
THE RIGHT TO REPAIR IS CRUCIAL TO A FAIR, EQUITABLE MA RKET: AASA
For over 100 years, the automotive aftermarket industry has been able to adapt to major changes within vehicle technology to repair cars safely. However, the car’s transformation into a large producer of data is raising new questions about who owns this data and who can use it, which will have implications in the maintenance of vehicles.
The aftermarket sector in the US is demanding the right to repair, which would enable vehicle owners to access their car’s data and choose where to repair their vehicles. The right to repair is essential for a fair, equitable aftermarket, said Ben Brucato, Vice President, Automotive Aftermarket Suppliers Association (AASA).
“The independent aftermarket, along with consumers, demands the right to choose where their vehicles are repaired, what products to use and a fair marketplace. If service professionals in the aftermarket do not have access to the vehicle data, they will not be able to do necessary repairs,” said Brucato.
In the US, the independent aftermarket share is expected to remain close to 70 percent until 2024, making it an essential part of the country’s economy, said Brucato.
The independent aftermarket plays an essential role in Mexico too. As of 2020, Mexico had over 231,000 shops dedicated to the maintenance and repair of light and heavy vehicles, according to INEGI. From every 100 households, there are 56 vehicles and Mexican families invest about 7 percent of their quarter spending on vehicle repair and maintenance.
Under the 2013 memorandum of understanding (MOU), automakers agreed to meet the requirements of the Massachusetts right to repair law enacted in December 2013, which guaranteed owners and independent shops access to the same tools, software and repair information available to franchised dealers.
The problem is that OEMs are keeping the data produced by the car, reducing access to
the aftermarket industry. “We have been here before [with the 2013 Right to Repair MOU], but it did not include telematics and ADAS technology.” These technologies generate large amounts of data and automakers claim that they must reduce access to the industry due to cybersecurity issues and data protection.
“Over a hundred years, the aftermarket industry has always been able to ensure safe repair and maintenance of the nation’s vehicles in a free market that values consumer choice, without opening the door to cyberattacks,” said Brucato.
Founded in 1904, the Motor & Equipment Manufacturers Association (MEMA) represents over 1,000 automotive companies in the original equipment and aftermarket segments of the US’s light vehicle and heavy-duty motor vehicle manufacturing industry. AASA is one of the four divisions of MEMA. AASA works to advance the supplier industry following the vision of a highgrowth, profitable, innovative and influential aftermarket industry.
AASA’s top initiative would allow aftermarket companies to access vehicle repair data. The proposed model would benefit all players, including OEMs, dealers, suppliers, distribution and repair players and motorists, said Brucato. The model proposes a new, neutral entity that sets standards and governs compliance and safety, securing access to data through a security model that authenticates and authorizes users.
In addition, the model requires crossindustry representation to ensure all interests are considered, allowing dealers to repair all models. Finally, it promotes mobility and customer satisfaction over vehicle lifetime, protecting brand perceptions and resale value. “We seek a fair and equitable market. Right to repair is a must and it is our priority. Collaboration is the solution,” said Brucato.