Automotive Suppliers Invest Heavily
11/28/2022 Markets & Industries News

Automotive Suppliers Invest Heavily

Automotive production in Mexico has not yet rebounded to pre-Covid levels. Nevertheless, numerous suppliers are planning new plants in the country.

Picture of the Mexican flag

Logistics processes in Mexico's automotive industry are running more smoothly again after being stalled by the lockdowns. The supply of semiconductor chips has also stabilized. In the first half of 2022, around 1.7 million cars rolled off the production lines at automotive plants in the Latin American country, 3.9 percent more than in the corresponding period the previous year. 

However, the sector is threatened by falling demand from the USA due to the slowing economic growth there. In 2021, around 91 percent of vehicles manufactured in Mexico were sold abroad, the majority of them to the USA. 

 

Primarily Suppliers Are Investing in Mexico 

No sector in Mexico attracts more foreign direct investment (FDI) than the automotive industry. According to the country’s Secretariat of Economy (Secretaría de Economía), foreign automotive companies invested about US$5.5 billion in Mexico in 2021. This represented 17.4 percent of the total FDI inflow and was about a quarter higher than the 2020 figure, but the previous record year of 2017, with its FDI of US$7.9 billion, appears a long way off.  


With almost all major automakers now having opened plants in Mexico, new investments are focused on expansion projects and Tier 1 and Tier 2 suppliers. The production of automotive parts for electric vehicles is also gaining importance, as investment plans by LG Magna e-Powertrain and ZF Friedrichshafen show. Although Mexico has a well-developed supplier network with around 1,300 manufacturing parts producers, the industry association Industria Nacional de Autopartes (INA) reports that so far only around 50 companies supply products for electric and hybrid cars. 

 

Mexico Overtakes Germany in the Production of Automotive Parts 

In 2021, Mexico's automotive parts industry produced US$94.8 billion worth of auto parts. This figure was announced by Francisco González, president of the INA automotive parts association, at the Automechanika Mexico trade fair in July 2022. This marks the first time that Mexico has overtaken Germany to become the fourth largest producer of automotive parts in the world. For 2022, the INA auto parts association expects the production value to exceed US$100 billion. Numerous German suppliers are represented in Mexico, including Continental, ZF Friedrichshafen, Bosch, Dräxlmaier, Schaeffler, Mahle, Brose, and ThyssenKrupp. 

 

Sport Utility Vehicle Models Lead Production 

In recent years, automotive plants have adapted to the strong U.S. demand for sport utility vehicles (SUVs), pickups, and off-road vehicles. In addition to the USA, Canada is also an important sales market for Mexican vehicles due to the United States-Mexico-Canada Agreement (USMCA). 


Manufacturers are shifting their focus to e-mobility. In 2021, General Motors had already announced plans to convert its Ramos Arizpe plant to electric vehicle production at a cost of US$1 billion. In November 2020, Ford launched production of the Mustang Mach-E, the first electric car manufactured in Mexico. In the first half of 2022, Ford produced about 34,000 Mustang Mach-Es in Mexico. 

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Only 70 Percent of Capacity Utilized 

In 2021, Mexico ranked seventh among the world's largest manufacturing countries with 3.1 million vehicles produced, just behind Germany. According to the industry association AMIA, however, production capacity is actually as high as 5 million vehicles annually. It is spread across 22 plants nationwide, some of which were built back in the 1960s. These include the Volkswagen plant in Puebla (opened in 1964), which has a capacity of around half a million vehicles. According to AMIA, capacity utilization at the plants was around 90 percent before the pandemic, but reached only 70 percent in 2021. In addition, there are ten plants for engines and seven production facilities for transmissions nationwide. 

Geographically, the automotive industry is concentrated in the central Bajió region around the states of Aguascalientes, Jalisco, Guanajuato, San Luis Potosí, and Querétaro. States bordering the U.S., such as Coahuila and Nuevo León, are also attractive, as are México and Puebla. The latter is home to the Volkswagen and Audi plants. The largest manufacturers in 2021 were General Motors and Nissan, each with three plants in the country, followed by Stellantis, Volkswagen, Toyota, KIA, and Ford. AMIA provides a geographical overview of automotive plants in Mexico. 

The production of commercial vehicles is also significant. Mexico is the world's fourth-largest exporter of trucks, semitrailers, and buses. There are a total of twelve plants for commercial vehicles in Mexico.  

EUROGUSS MEXICO is the platform to get in touch with the market on site.  

Source: GTAI | https://www.gtai.de/de/trade/mexiko/branchen/kfz-zulieferer-investieren-kraeftig-866428

Authors

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Edwin Schuh