The electric vehicle (EV) market is exploding worldwide. By 2030, the International Energy Agency predicts that 60% of all vehicle sales worldwide will be EVs. And in the US, even though total vehicle sales will drop 8% year-over-year in 2022, EV sales will increase 65%, according to data from Kelly Blue Book. Although countries like China have grabbed the headlines in the EV race, the biggest beneficiary of all this expansion has been Mexico.
“Mexico has unique advantages that can help strengthen its position in the automotive industry in the midst of the EV transition,” said Alejo Czerwonko, UBS’s chief investment officer (CIO) for Americas Emerging Markets, and Gabriela Soni, CIO for Mexico, explained in a note Thursday. .
Mexico has the world’s tenth largest store of lithium, the main component used in EV batteries commonly referred to as “white gold” in the industry. And the current strength of auto manufacturing in the country, coupled with an increase in nearshoring — where manufacturers work with supply chains closer to home — after pandemic-era supply chain disruptions, may be the powerhouse of EVs in the future, Czerwonko and Soni said.
But the pair are also careful to warn that Mexico’s EV success is not guaranteed, and that it “faces a long way to go” due to one key factor: the lack of energy infrastructure needed to manufacture EVs.
The advantages of EVs are serious
Mexico is already the fourth largest exporter and seventh largest automaker in the world, and hosts several major automakers, including Toyota, Kia, Volkswagen, and Nissan. Ford even produces the Mustang Mach-E EV at its Cuautitlán Stamping and Assembly Plant in Cuautitlan Izcalli, about 20 miles outside of Mexico City.
Many automakers have also recently announced they are moving to Mexico to produce EVs. General Motors (GM) said last year it would build the 2024 Blazer EV and Equinox EV at its plant in Ramos Arizpe, a northern city in the state of Coahuila. BMW said last month that it would invest $866 million in EV production in the country. And Tesla announced plans for a $5 billion Gigafactory in Monterrey, Nuevo Leon, Mexico, about 120 miles from the US border last week.
Local officials say the 4,200-acre site is nearly twice the size of EV giant Texas’ facility.
“This is a game-changer for the transition from the traditional industry to the industry of the future, the green industry,” the Governor of Nuevo Leon Samuel Garcia said on Friday, adding that it could lead to $ 10 billion in total investment into the country in the coming. year, Bloomberg reported.
Czerwonko and Soni called Tesla’s move “a vote of confidence in the Mexican auto manufacturing industry and its hopes of gaining market share in the global electric vehicle (EV) space,” and noted that this is just one of the data points that show Mexico has benefited from nearshoring. Through the first nine months of 2022, foreign direct investment into Mexico increased by 29.5%, the most since 1999, according to data from the Mexican Confederation of National Chambers of Commerce (CONCANACO).
Energy challenge
Despite all the advantages, however, the lack of stable energy infrastructure is a problem when it comes to EV production in Mexico. EV production facilities are as energy intensive as the vehicles they produce.
Czerwonko and Soni of UBS said energy availability is a major source of concern given Mexico’s reliance on fossil fuels and frequent power outages. Mexico is aware of the problem, and Foreign Minister Marcelo Ebrard said last month that he would support various manufacturing centers for EVs in the country by building five large solar plants to produce 5 gigawatts of energy capacity. He told me Reuters that he hopes to attract all possible foreign investors with the project, noting that BMW, Audi, GM, Fiat Chrysler, and, of course, Tesla have all expressed interest in producing EVs in the country.
“Big questions remain about the financing of these ambitious plans, as well as the efficiency and the ability of the operational management of the state electricity company to deploy investments of this scale,” UBS’ Czerwonko and Soni warned, arguing that “significant additional investments are needed to develop renewable energy sources Mexico.
The UBS team noted that Mexico hopes to obtain financing for energy projects through the North American Development Bank (NADB), which was created by the Mexican and US governments to help finance infrastructure projects. But that is not a sure thing.
“It seems unlikely that the NADB will provide the amount of resources that the Mexican government needs. Therefore, the plan will require a mix of private, public, and development bank funds,” he said.
Planning for the future
Still, Mexico’s state electricity utility CFE has begun work on its first solar plant, which will be the largest in all of Latin America, in the northern state of Sonora. The government also plans to expand the total renewable energy capacity to 30 gigawatts by 2030.
Mexican President Lopez Obrador also nationalized lithium production by 2022, and created a state-owned company called LitioMx to manage exploration, mining and refining last month in hopes of attracting foreign investors. The company has been in talks with Canadian lithium miner Advanced Lithium to mine the metal for EV battery production, Reuters reported on Friday.
Czerwonko and Soni said that, overall, they believe that Mexico can “seize the emerging EV opportunity,” as long as the public-private partnership works as intended.
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