Mexico: Investment plans for near-shoring and EV shift

Production and sales recover in 2022; Tesla to build new plant for next-gen EVs

2023/04/24

Summary

Tesla Gigafactory
Tesla's fifth Gigafactory announced for construction in northern Mexico (Source: Tesla)

  Over the past year or two, Mexico's position in the global automotive industry has changed significantly. One of the major factors is that the U.S., the world’s largest market, has shifted to "friend-shoring," shifting production and procurement to its allies in response to the escalating geopolitical risks caused from the intensifying conflict between the U.S. and China and Russia's invasion of Ukraine. In addition, there is a strong recognition of recent supply chain risks due to the COVID-19 crisis and semiconductor shortages, and Mexico, as a neighboring country in North America, has become more advantageous as an investment destination for "near-shoring" (production closer to the consumption area) to prepare for such risks. The USMCA (U.S.-Mexico-Canada Agreement), which was agreed to in 2020, has been a point of contention over the no-tariff requirement, but against the backdrop of these changes in the environment, the agreement is headed for a resolution in favor of Mexico and Canada in 2023.

  In addition, as the automotive industry rapidly develops and introduces new vehicles and new technologies in preparation for the shift to EVs, OEMs and parts suppliers are announcing investment plans for facility expansion and renewal in Mexico, which is the manufacturing hub for vehicles destined for North America, in rapid succession. In March 2023, Tesla officially announced the construction of its fifth vehicle plant (Gigafactory) in northern Mexico, raising expectations for its industrial and economic benefits.

  Looking back at the situation in 2022, Mexico's automobile production and sales showed year-over-year (y/y) recovery, increasing by 9.2% and 7.9%, respectively, but there is still a large gap from the levels before the COVID-19 crisis. In addition, the speed of recovery varies greatly from OEM to OEM, and the power structure of the industry is changing. While the dependence on the U.S. market as a destination for exports of production vehicles is further increasing, there are also many noteworthy developments, such as China becoming the largest producer of vehicles imported into Mexico.

  This report is an update of our previous report on the USMCA and the Mexican automotive industry (published in March 2022), providing an overview of the latest market situation and organizing and reporting on the trends and announced plans of industry companies, mainly major OEMs.

 

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Emerging U.S. EV Makers on the Move (Feb. 2023)
U.S. Market: Policies to Expand Semiconductor Production and Popularize EVs (Oct. 2022)
Stellantis (Part 2): Group sales and revenue up sharply H1 '22 (Aug. 2022)
Stellantis (Part 1): 75 BEV Models by 2030, Aiming for 5 million Annual BEV Sales (Jul. 2022)
GM (2) Sales supported by Chinese market, profits by U.S. truck sales (Jun. 2022)
GM (1): Accelerating its Electrification Strategy to become the EV Leader in the U.S. (Jun. 2022)
Ford (Part 2): Enhancement of CVs and EVs in EU, Lincoln models and SUVs in China (Apr. 2022)
Ford (Part 1): Focusing on EVs and Commercial Vehicles under the "Ford+" Business Strategy (Mar. 2022)
The USMCA and the Mexican Automotive Industry (Apr. 2022)

 

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