Mexico is well established in manufacturing for the global automotive sector. As demand for electric vehicles picks up, the country is keen to go all-in on EVs.
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Neighbouring the world’s second-largest car market, Mexico offers a skilled workforce, internationally recognized quality standards, and capabilities for producing technologically complex components. American and Japanese giants such as GM, Ford, Toyota and Nissan have run manufacturing operations there for decades. The country received a boost from the 1993 passage of the North American Free Trade Agreement (NAFTA), and by 2021 Mexico was the world’s seventh-largest carmaker.
Now Tesla, the world’s top electric vehicle maker, is said to be considering opening a gigafactory near the new Felipe Ángeles International Airport in Mexico City. Tesla’s plans are unconfirmed to date. But Noah Itech, a Chinese company which supplies automation equipment to Tesla, has moved forward with its own plans to build a $100 million plant, its first in Mexico.
Carmakers and suppliers worldwide are ramping up production for electric vehicles to meet rising demand. Mexico’s prospects are bright, as the same advantages that have drawn carmakers in the past transfer to EV production. Some automotive firms are converting existing factories in Mexico, The Economist reports, and at least eight plants are already assembling EVs there. GM is investing $1 billion to convert its Ramos Arizpe plant in Coahuila, opened in 1981, to produce only EVs by 2024. The company plans to convert two other Mexican plants to EV production by 2035.
On February 3, Germany’s BMW announced that it will invest about $870 million to expand its operations in the Mexican state of San Luis Potosi to produce batteries and fully electric “Neue Klasse” models. This represents BMW’s latest push into EVs; the company aims to convert more than half of its sales to all-electric cars by 2030.
New EV production facilities are being built in Mexico as well. Bombardier Recreational Products (BPR), a Canadian maker of snowmobiles, all-terrain vehicles and the like, broke ground on a new EV manufacturing facility in Querétaro last year. As part of BPR’s electrification plan, the plant will manufacture electric motorcycles. Japanese company Nidec announced in November that it will invest about $715 million to construct a plant in Mexico to produce motors for electric vehicles.
José Zozaya, Executive President of the Mexican Automotive Industry Association, believes carmakers will be making even more vehicles and components in Mexico. It offers manufacturers a way to avoid having to rely on China for parts and production amidst ongoing supply chain issues and geopolitical tensions between the U.S. and China. Additionally, the country offers the benefit of manufacturing and sourcing parts close to their intended market.
Mexico’s ambitions are lofty: It is aiming for EVs to comprise half of all vehicles produced by 2030. The outlook from Francisco Garza, CEO of GM’s operations in Mexico, is tempered. He says that 15% is more realistic, due in part to a lack of incentives. American companies that convert factories on U.S. soil to EV production stand to gain from the $2 billion set aside for this purpose in President Biden’s Inflation Reduction Act. In addition, uncertainty over energy prices in Mexico could cause foreign firms to pump the brakes.