While investments in new vehicle assembly plants have been virtually nonexistent in recent years, the parts industry has led the sector in investment, driving Mexico’s continued rise as a global leader in automotive production. The bustle in Mexico’s parts factories has not slowed down. While announcements of new vehicle assembly plants have been scarce in the last decade, component suppliers have experienced unprecedented growth. Production lines are working at full capacity in industrial parks across states like Coahuila, Nuevo León, Guanajuato, and Querétaro. This is primarily driven by a growing demand for parts manufactured in North America.
Mexico’s Rise as a Global Automotive Leader
Mexico has become the seventh-largest producer of finished vehicles and the fourth-largest producer of auto parts worldwide. Despite the lack of new vehicle manufacturing projects, Mexico has maintained its prominent position in the automotive industry, with an increasing focus on the automotive parts sector. While investments in new assembly plants have been practically nonexistent since 2015, when Toyota announced its plant in Guanajuato, the parts sector has seen a significant increase in Foreign Direct Investment (FDI).
Canceled or Delayed Vehicle Manufacturing Projects
The lack of new vehicle manufacturing plants is not just a matter of missed opportunities. Several initiatives have been canceled or delayed, with major automakers such as Ford and Tesla pulling out of projects in Mexico. Ford’s planned plant in San Luis Potosí was halted after political and economic pressures, and Tesla’s proposed factory in Nuevo León remains on hold. Meanwhile, some initiatives from Chinese brands, which were seen as potential game-changers, have yet to materialize, leaving many in the industry to wonder about the future of Mexico’s role in vehicle assembly.
Strong Focus on Parts Manufacturing Investments
However, despite the stalled vehicle manufacturing projects, Mexico continues to attract investments, especially in parts manufacturing. Existing plants are being modernized and expanded, with companies such as Nissan, General Motors (GM), Stellantis, Volkswagen, Toyota, Audi, and BMW reinvesting in their operations in the country. In 2022, Nissan allocated $700 million to its Aguascalientes complex, and GM invested $1 billion into its Ramos Arizpe facility to boost electric vehicle production. These reinvestments reflect Mexico’s ongoing importance in the automotive supply chain, especially for parts manufacturers in Mexico, which are central to maintaining North America’s competitive edge in the global market.
The Impact of Foreign Direct Investment in the Parts Sector
The expansion of the parts industry in Mexico has profoundly impacted its economic landscape, boosting employment and economic growth. According to the National Auto Parts Industry (INA), FDI in the parts sector reached an astounding $2.55 billion in 2023, surpassing the investment allocated to finished vehicle manufacturers for the first time. The growing importance of the parts sector reflects a broader trend in global manufacturing, where the focus is shifting from vehicle assembly to the components that make up the finished product.
The Role of the USMCA in Mexico’s Parts Industry Growth
Parts manufacturers in Mexico have become key players in the global automotive industry, with FDI expected to have grown by 25.4% in 2024, continuing the upward trajectory in the sector. This expansion can be primarily attributed to the changes introduced by the United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) in 2020. The USMCA imposed stricter rules for the automotive sector, requiring more parts to be sourced from within the region. The agreement’s stipulation that 75% of a vehicle’s content must be sourced from North America, up from the previous 62.5% under NAFTA, has driven demand for parts manufacturers in Mexico, as automakers are now required to source more components from the region.
Restructuring the Automotive Supply Chain
Manuel Montoya, director of the Automotive Cluster of Nuevo León and former president of the National Network of Automotive Industry Clusters, explained that the shift in the trade agreement has led to a significant restructuring of the automotive supply chain. “The USMCA is forcing automakers and Tier 1 suppliers to buy regionally. What was previously done in Japan, South Korea, Germany, and China is now being developed in the region,” Montoya said. As a result, parts manufacturers in Mexico are now playing a central role in meeting the increasing demand for regionally sourced components.
Mexico’s Growing Auto Parts Production and Exports
This increase in demand has been mirrored by an impressive growth in Mexico’s auto parts production. In 2023, the value of auto parts production in Mexico reached $120.4 billion, with projections indicating a 2.1% growth, bringing the total to $122.89 billion in 2024. A significant portion of this production is exported, with 87% of Mexico’s auto parts exports being sent to the United States and 3.7% going to Canada. The remaining parts are destined for global markets, further solidifying Mexico’s role as a manufacturing hub for high-quality components.
Regional Integration Boosts Competitiveness
Experts point out that regional integration has been key to the success of parts manufacturers in Mexico. “Here, we can’t speak of Mexico versus the United States or Canada versus the United States. The reality is that the actors in the automotive industry are the same on all three sides of the border,” said Juan Francisco Torres Landa, partner at Hogan Lovells Mexico. This integrated approach has made it possible for parts manufacturers in Mexico to maintain strong ties with their counterparts in the U.S. and Canada, enhancing the competitiveness of the North American automotive industry.
Concerns About Political Uncertainty in the U.S.
Despite the success and growth of Mexico’s parts sector, the uncertainty surrounding the political landscape in the United States has raised concerns about the future of the automotive industry in North America. The recent re-election of Donald Trump as president of the United States has generated speculation about the future of the USMCA framework. During his campaign, Trump hinted at the possibility of imposing tariffs on products made in Mexico, which could jeopardize the current integrated production strategy in the region. This has left many in the industry concerned about the potential impact on trade relations between Mexico, the U.S., and Canada.
Optimism for Mexico’s Automotive Industry
Nevertheless, industry experts remain cautiously optimistic about the future of Mexico’s automotive sector. Gerardo Gómez, CEO of J.D. Power in Mexico, believes that Mexico has become a critical production and export hub, with its parts manufacturing sector meeting the high-quality standards required in markets worldwide. “Mexico has become a production and export hub with quality standards that are appreciated in other parts of the world,” Gómez said. The country’s ability to adapt to the needs of automakers and suppliers in North America has positioned it as a leader in automotive parts production.
Conclusion: Mexico’s Role as a Global Automotive Player
In conclusion, while new vehicle assembly plants may have slowed down, expanding parts manufacturers in Mexico is transforming the country into an indispensable player in the global automotive industry. The country’s strategic location, skilled labor force, and investment in technology have allowed it to emerge as the leading recipient of foreign direct investment in the sector, setting the stage for continued growth in the coming years. As long as the demand for high-quality, regionally produced components remains strong, Mexico’s parts manufacturers will continue to thrive.