How Mexico's Automotive Industry Offers Growth Opportunities for Global Exporters

This is a Ford that entered the Mexican market in 1925.

This is a Toyota that entered the Mexican market in 1960.

This is a JAC Motors (Chinese Brand) that entered in 2017.

Today, 14 car brands operate 22 manufacturing plants in Mexico, along with 10 engine factories and 7 transmission plants.

Map of Mexico Automotive Original Equipment Manufacturers (OEMs)

Mexico is now the 7th largest car producer and the 5th largest auto parts manufacturer globally. In 2023, Mexico imported $10.74 billion worth of auto parts (HS code: 8708), with China, Germany, and Japan ranking as its top 3 trade partner.

Mexico's Top Import Trade Partner for Automotive Cars

Mexico's Total Import for Automotive Cars (USD)

With such an important market, could this be a golden opportunity for auto parts exporters?

In history, American, Japanese, and German automakers entered Mexico one after another.

The history of Mexico’s auto industry dates back to 1925 when Ford established a full assembly line. Ten years later, General Motors entered in 1935, followed by Chrysler in 1937. The entry of these three companies transformed Mexico into a low-cost manufacturing hub for U.S. automakers.

More than 20 years later, Japanese and German automakers joined the scene:

In 1960, Toyota partnered with a local Mexican company, though they later divested in 1964.

In 1961, Nissan began producing Datsun vehicles at its new plant in Mexico, marking Nissan’s first manufacturing base outside of Japan.

In 1964, Volkswagen established its Mexican headquarters in Puebla, and three years later, production of its iconic Beetle began.

Policies can both harm and support growth.

In 1962, the Mexican government introduced a decree requiring that 60% of auto parts used in Mexican-made vehicles be domestically produced. Additionally, foreign ownership in auto parts joint ventures was capped at 40%.

As a result, many automakers, including Mercedes-Benz, Fiat, Citroën, Peugeot, and Volvo, left Mexico due to their inability to comply with the law.

1994: A turning point for Mexico 

With the passage of NAFTA (North American Free Trade Agreement), many global automakers established manufacturing bases in Mexico.

NAFTA allowed Mexico’s maquiladora factories to enjoy duty-free imports and tax incentives for specific products. These advantages helped boost auto sales in the late 1990s, and automakers that had previously left the market in the 1960s began to return.

In 2020, the US, Mexico, and Canada signed the USMCA (United States-Mexico-Canada Agreement), replacing NAFTA after more than two decades. USMCA stipulates that 75% of the parts in cars produced in Mexico must originate in North America, an increase from NAFTA’s 62.5%.

This closed the loophole where automakers could assemble vehicles with minimal work in Mexico and sell them in the U.S. tariff-free. Now, automakers must engage in full-scale manufacturing in Mexico if they wish to export to the U.S.

Embracing the era of electric vehicles

Although the U.S. passed the Inflation Reduction Act in August 2022, benefiting North America's EV market, Mexico's transition to electric vehicles (EVs) has been slower.

According to Marklines, Mexico’s EV penetration rate is only around 1%, with no clear upward trend.

In 2023, Mexico sold 16,000 new energy vehicles (NEVs), with a 1.3% penetration rate. This is due to the absence of a complete local EV supply chain.

But then came that man.

In March 2023, Tesla officially announced the construction of a Gigafactory in Mexico, which could become Tesla’s largest plant. The facility, which will span over 4,200 acres, will not only produce vehicles, batteries, and semiconductors but also develop software.

Illustrative Map of Tesla's Mexico Gigafactory

For a century, the roar of car engines has echoed throughout Mexico, as automakers worldwide have come and gone, driving Mexico’s economy and benefiting its people.

As the future ushers in the spread of EVs, Mexico will offer new growth opportunities for Global auto parts exporters.

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References:

1. A Brief History of the Mexican Automotive Industry: https://insights.tetakawi.com/zh-hans/mexican-automotive-industry-history
2. 2024 Automotive Export Report: Targeting Mexico, China’s Auto Parts Enter the Global Supply Chain: https://www.vzkoo.com/read/20240402015c694d9decd5a57e8fc602.html
3. 2024 Automotive Industry Export Report: Mexico's Rising Exports, Continuing Influence in the North American Market: https://www.vzkoo.com/read/202402197050930f4ba68ef9ae18c8a4.html
4. 36Kr Overseas: The “Chinese DNA” in Mexico’s Automotive Supply Chain: https://new.qq.com/rain/a/20230920A08BVX00
5. Mexico's Automotive Manufacturing Attracting Many Enterprises: https://tetakawi.com/zh-hans/Topease: https://en.topease.net