“We can’t put the future on hold,” the CEO of Ford recently commented when asked about the sudden growth of the electric vehicle (EV) industry. The era of transportation with electric motors is a reality and is experiencing significant advances and growing acceptance worldwide. Nations from Europe, Asia, and even the United States are implementing clean energy initiatives to reduce carbon emissions and the use of fossil fuels.
At this moment, Mexico finds itself in a position of opportunity since it is experiencing a change in which the country can play an essential role in the global trend of reducing the use of automobiles that use fossil fuel as an energy source. After all, Mexico is the seventh largest vehicle manufacturer in the world. In this blog post, we will review the current situation surrounding the electric vehicle industry in Mexico and the investment opportunities that will arise from the development of electric and hybrid vehicles.
The boom of the hybrid and electric vehicle industry in Mexico
In 2022, Mexico manufactured 3,068,812 vehicles with electric technology, of which 47,079 were sold within the country (the rest were exported), representing 4.1% of the total cars sold during that year.
The fact that only 4.1% of total sales of this type of car remained in the country may seem insignificant; However, it represented an increase of 61% compared to 2020. In addition, Mexico was also the largest consumer of electric vehicles in Latin America, followed by Brazil and Colombia.
The most popular electrified vehicles in Mexico are hybrid models (cars that combine the traditional combustion system with electric batteries). However, EVs (vehicles that run 100% on an electric motor) are gaining popularity. According to the AMIA (Mexican Association of the Automotive Industry), in 2020, only 1.8% of the total registered electric cars sold were 100% electric. In 2021, that amount rose to 2.4%; this last year, it jumped to 8.8%.
This trend continues to grow, and according to the INEGI (National Institute of Statistics and Geography), by 2030, Mexico will be selling 72,655 100% electric vehicles nationwide. This will represent 2,000% more than last year’s sales. This data shows Mexico is one of the main actors in the growth of electric vehicle consumption in Latin America.
As an automobile producer, the electric vehicle industry in Mexico is ready to receive more foreign direct investment to manufacture EVs. Historically, Mexico has proven profitable and safe for investors in the automotive industry due to its workforce quality, value chain position, strategic location, and international alliances.
A global shift towards combustion with green energy
Modern consumers are demanding radical change and concrete action to protect the environment, especially concerning the automobile industry. In 2022, a record of 36.6 billion tons of carbon emissions were reached due to the use of fossil fuels. Consequently, the UN has declared a goal of reducing carbon dioxide emissions by 45% by 2030 (considering 2010 as the base year) and achieving net zero emissions by 2050.
Nations are responding to the call and taking concrete action. It is a global movement already taking its first steps in Mexico. Meanwhile, the UK aims to ban the sale of combustion vehicles by 2030. Also, by the same year, Belgium will ban cars that run on diesel and, by 2035, vehicles that use gasoline. The United States, although less ambitious in its goals to eliminate combustion vehicles, will invest in constructing a national network of 500,000 electric charging stations, allocating about 1.2 billion dollars by 2030.
According to American consultant AlixPartners, the global automotive industry plans to spend $526 billion on electric vehicles by 2026. So, what could this mean for the electric vehicle industry in Mexico?
What opportunity does Mexico have in this green revolution?
Mexico is a manufacturer par excellence. This global automotive phenomenon means that demand for electrical parts will be at an all-time high. Currently, China is the worldwide leader in manufacturing these items, but circumstances show that Mexico could become one of the leaders in global EV manufacturing.
These are the reasons:
- Record sales in auto parts
In 2019, according to INEGI data, manufactured automobile parts were worth $97.8 billion. The following year, Mexican auto parts production fell to $78.4 billion due to production and consumption restrictions due to the pandemic, and 2021 was the year of recovery since a value of $94.7 billion was reached. On the other hand, in 2022, Mexico broke a record by exceeding $101 billion in auto parts. This evolution is expected to continue as the electric vehicle industry in Mexico continues to grow.
- US EV Vision 2030
Simultaneously with the infrastructure development goals mentioned above, the President of the United States plans to provide financial support to any citizen who purchases an electric vehicle. This incentive is expected to cause a significant increase in demand, which EV and auto parts manufacturers must meet. Consequently, the effect of this incentive will promote the ‘electrification’ and growth of the electric vehicle industry in Mexico. In the final analysis, the country will see substantial opportunities in manufacturing electric vehicles, original equipment parts, aftermarket, and components in general.
- Development has already started
In 2021, several multinational companies began upgrading and expanding their facilities to support growth in electric vehicle manufacturing. For example, Ford Mexico has begun producing the Mustang Mach-E at its factory in Cuautitlán, in the state of Mexico. General Motors invested in its Ramos Arizpe plant to manufacture batteries and began preparing its land to build facilities for the EV assembly process this year.
Likewise, Volkswagen has announced investments of more than 7 million dollars for the next five years, focused on producing zero-emission vehicles. They are expected to remodel or expand their manufacturing plants in Puebla and Silao to include EV components. And finally, there is BMW in Mexico, which will begin manufacturing its iX3 electric SUV at the San Luis Potosí plant.
What are the specific manufacturing requirements in the electric vehicle industry in Mexico?
A diversity of manufacturers will be included. There are many kinds of components that EV manufacturing requires to be successful.
These are the main three:
- Battery manufacturing: The most critical component for electric vehicles. Manufacturers seek innovative and adaptable manufacturing spaces, requiring specific safety considerations to handle batteries and their components properly.
- Flexibility: It is necessary to create facilities that allow the manufacturer to adapt the design of its plant to remain competitive quickly. The design must consider the safety and well-being of the workforce at all stages of manufacturing until reaching final assembly.
- Sustainable assembly: One of the challenges for this type of facility is that investors look for sustainable manufacturing plants in Mexico’s electric vehicle industry. The facilities must be suitable to operate with renewable energy and reduce polluting emissions. Likewise, the facility construction process must follow these objectives, ensuring minimal waste and environmental disruption. In many cases, LEED® certification is adopted in projects.
The electric vehicle industry in Mexico must stay in the future. The new generations of citizens and their future governments are preparing for a solid transition towards cleaner energy with the massive use of EVs. Mexico must make the most of the situation and work in a focused manner to adopt this global trend. Given the automotive industry infrastructure that it already has in place, Mexico has the potential to become one of the leading manufacturers of electric vehicles and auto parts worldwide.