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NewsTop StoriesTrucking

Can Mexico capitalize on US automakers’ pivot to electric vehicles?

Mexico could become even bigger player in global automotive manufacturing industry

The multibillion-dollar North American automotive sector, which includes one of the largest components of U.S.-Mexico trade, could dramatically change as many automakers make a substantial shift to manufacturing electric vehicles.

On April 30, General Motors (NYSE: GM) became the first U.S. automaker to announce it would build electric vehicles in Mexico. GM said it would invest $1 billion in its factory in Ramos Arizpe to produce electric cars.

As U.S. automakers pivot into the electric, autonomous vehicle era, cross-border operators say Mexico is more than ready to seize the moment.

“GM’s announcement is really exciting news for Mexico because it’s one of the very first electrical vehicles that’s going to be made in Mexico,” said Jordan DeWart, managing director at Redwood Mexico based in Laredo, Texas. Redwood Mexico is part of Redwood Logistics, headquartered in Chicago.

GM’s facility in Ramos Arizpe currently makes the Chevrolet Blazer and Equinox SUVs, along with engines and transmissions. GM aims to manufacture two electric Chevrolet SUVs in Ramos Arizpe starting in 2023, according to Reuters.

GM said it will have 30 all-electric vehicles by 2025, including the Chevrolet Bolt and Silverado electric pickup truck, Cadillac Lyriq EV SUV, GMC Hummer EV SUV and Hummer EV pickup, and the Cruise Origin.

The Ramos Arizpe plant will be GM’s fifth electric vehicle factory, joining plants in Spring Hill, Tennessee; Factory ZERO in Detroit and Hamtramck, Michigan; Orion Assembly in Orion Township, Michigan; and CAMI in Ingersoll, Ontario.

The Ramos Arizpe factory employs 5,600 workers and could expand its workforce, according to Francisco Garza, CEO of GM Mexico.

“We trust that the necessary economic conditions will be met so that eventually the complex can grow the workforce one more shift in some operations,” Garza said in a statement.

GM currently employs 5,600 workers at its plant in Ramos Arizpe, Mexico. Company officials said the workforce could be expanded once production on electric vehicles begins by 2023. (Photo: GM Mexico)

In addition to building electric vehicles in Mexico, GM plans to convert its entire portfolio of vehicles to an all-electric platform by 2035.

“GM’s announcement will bring a lot of new suppliers to that marketplace that haven’t been there before,” DeWart said. “Suppliers typically set up in Asia, in China, obviously, and even some in the U.S., but they will definitely come to Mexico to set up plants.”

Deepak Chhugani, founder and CEO of Nuvocargo, said GM’s announcement that it will build electric cars in Mexico shows that the cross-border market is only going to grow. Nuvocargo is a digital logistics platform for cross-border trade between the U.S. and Mexico.

“We think it’s proof of the thesis behind Nuvocargo, which is that bigger and bigger firms in the U.S. are finding that Mexico is a very attractive place to manufacture,” Chhugani said. “Anywhere in Mexico, whenever there are tier one companies from the U.S. setting up manufacturing, that’s attractive for carriers, because that means that they’re typically going to have larger and more predictable volumes.”

In Mexico, Ford Motor Co. (NYSE: F) recently began producing the Mustang Mach-E at the company’s assembly plant in Cuautitlan, just north of Mexico City. The Mach-E is Ford’s first all-electric crossover vehicle.

Ford also announced in March two additional midsize electric crossovers — one Ford and one Lincoln (Ford’s luxury vehicle line) — will be built in the Cuautitlan plant. 

Joshua Rubin, vice president of business development at Javid LLC, said more electric vehicle production in Mexico could lead to increased cross-border freight. Javid is a Nogales, Mexico-based firm that helps facilitate foreign manufacturers that want to move operations to Mexico.

“As GM grows and needs additional suppliers, there is a good chance that we are going to see more companies looking to move into Mexico to nearshore their operation closer to GM’s,” Rubin said.

US-Mexico auto industry is big business

In 2020, the U.S. automotive industry accounted for about $630 billion, 3% of gross domestic product (GDP), according to a report, “State of the U.S. Automotive Industry,” by the American Automotive Policy Council (AAPC). 

“Automakers and their suppliers are America’s largest manufacturing sector,” according to AAPC’s report. “They are also America’s largest exporters. Over the past 10 years, automakers have exported more than $1.1 trillion in vehicles and parts — nearly $36 billion more than the next largest exporter (aerospace).”

The U.S. automotive industry — which includes automakers and their suppliers, as well as vehicle dealerships and auto parts retailers — employs more than 4.1 million people, according to AAPC.

Mexico’s automotive industry accounted for about $32 billion (3%) of the country’s GDP in 2020, according to the Mexican Automotive Industry Association (AMIA). Mexico is also the world’s sixth-largest producer of cars and light trucks and fourth-largest exporter of vehicles.

The Mexican automotive industry employs around 900,000 people, according to Mexico’s National Institute of Statistics and Geography.

Roy Austin, business development manager for The ILS Co., said the U.S. and Mexican automotive industries have been linked for decades. The ILS Co., based in Tucson, Arizona, is a third-party logistics provider serving the U.S. and Mexico. 

“GM, Ford and other automakers have already been in Mexico for over 50 to 60 years or more,” Austin said. “They have enjoyed a relationship with Mexico to great success.”

Ford has been building cars in Mexico since 1925, when it opened a plant in Mexico City to manufacture Model A cars, which replaced the Model T in 1928. GM opened its first plant in Mexico in 1938.

The GM plant in Ramos Arizpe, Mexico, recently celebrated its 40-year anniversary. The facility currently produces the Chevrolet Blazer and Equinox SUVs. (Photo: GM Mexico)

Other carmakers, like Toyota, Nissan and Volkswagen, began opening factories in Mexico during the 1950s and 1960s.

Mexico currently has 26 automotive plants across the country, including plants belonging to GM, Ford, FCA U.S., Toyota, Volkswagen, Honda, Nissan, Mazda, BMW and BAIC Group, according to AMIA. There are also more than 600 tier 1, 2 and 3 auto suppliers/manufacturers in Mexico.

Austin said since U.S. automakers already have long ties with Mexico, more suppliers and supply chains should be moving south of the border.

“I think the trend is only going to continue to grow,” Austin said. “The traffic and the complications with having shipments, vessels on the sea, this is a world that demands things yesterday. The only way to shorten the times is to have cars built and assembled closer to the U.S.”

Jorge Canavati, principal at J. Canavati & Co., said Mexico also has the engineers and qualified workforce to compete with anyone. J. Canavati & Co. is a San Antonio-based company that provides international logistics and trade consulting.

“This is a good move for GM and speaks volumes of the high caliber of the workforce and logistics in Mexico,” said Canavati, who is also chairman of the Global Chamber of Commerce, San Antonio Chapter.

“Mexico has vast experience in advanced manufacturing, which includes aerospace and of course automotive. There are very developed automotive and aerospace clusters throughout the country. The supply chain and logistics platforms, which already exist, play a key role in the manufacture and sourcing in/from Mexico,” Canavati said.

Boost in cross-border trucking and freight

While DeWart is located in Laredo now, he also worked for over 20 years in automotive logistics in the Bajío region of central Mexico in the Mexican state of Guanajuato.

Guanajuato is home to one of Mexico’s largest automotive manufacturer clusters, representing 11% of the national production of auto parts, behind only the states of Coahuila (16.7%) and Chihuahua (12.4%), according to Mexico’s National Autoparts Industry Association.

“When the big three Japanese automakers came in there — Honda, Mazda, Toyota — we saw just a slew of new suppliers pour into Mexico from all over Asia that had not traditionally been in that marketplace,” DeWart said.

GM’s Ramos Arizpe plant is located in the state of Coahuila, about 180 miles south of the U.S.-Mexico border crossing in Laredo.

“I think off the start, you’ll see GM get its supplies from factories around the world. But Mexico is so competitive to set up, that’s something that can be done so quickly now that they’ll definitely be setting up their own plants to supply the GM plant,” DeWart said.

Laredo and Otay Mesa, California, just south of San Diego, are the two busiest U.S.-Mexico border crossings for imports of assembled vehicles and auto parts. According to FreightWaves SONAR platform, freight volumes in Laredo (OTVI.LRD) and San Diego (OTVI.SAN) are up significantly compared to last year. 

(Chart: FreightWaves SONAR. To learn more about FreightWaves SONAR, click here.)
(Chart: FreightWaves SONAR. To learn more about FreightWaves SONAR, click here.)

Rahul Oltikar, chief operating officer of Laredo-based Jamco Group, said GM wouldn’t be investing $1 billion in Mexico without already talking to automotive suppliers that will follow GM.

“I think when you have people like GM investing a billion dollars, they’re doing that because they already know that the infrastructure is going to follow. Just as tier 1, 2, 3, 4 manufacturing followed suit after your larger OEMs moved down there 25 years to 30 years ago, the same thing is going to happen,” Oltikar said.

Oltikar said Mexico has the infrastructure for more electric car factories. He pointed out that China-based Ganfeng Lithium, one of the world’s top producers of the lithium used in electric vehicle batteries, owns and operates lithium mines in Sonora, Mexico. Ganfeng’s customers include Tesla,Volkswagen and BMW.

“You have Chinese manufacturers already making investments on battery recycling and battery manufacturing in Sonora, Mexico,” Oltikar said. 

Oltikar also said that Tesla CEO Elon Musk chose Austin, Texas, as the site for the company’s newest electric vehicle factory for several reasons, one of the main ones being its proximity to Mexico.

“You know, Elon Musk isn’t just moving down here [to Texas] just to take advantage of the tax situation in Texas versus California, he’s moving down here to be closer to Mexico,” Oltikar said. 

In July, Musk announced that Tesla (NASDAQ: TSLA) will build its newest gigafactory in Austin. The factory, which is estimated to cost more than $1 billion, will build Tesla’s new electric Cybertruck pickup, as well as semi-trucks.

“Once you see Tesla, GM and Ford and everybody kind of moving in this direction, momentum will shift and there’ll be more and more infrastructure in Mexico, which has done a really good job of being able to adapt,” Oltikar said. “I think in the next 24 to 36 months, we’ll be talking about a very different game, especially as suddenly some of these dollars start flowing into Mexico.”

Click for more FreightWaves articles by Noi Mahoney.

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Noi Mahoney

Noi Mahoney is a Texas-based journalist who covers cross-border trade, logistics and supply chains for FreightWaves. He graduated from the University of Texas at Austin with a degree in English in 1999. Mahoney has more than 20 years experience as journalist, working for newspapers in Florida, Maryland and Texas. Contact nmahoney@freightwaves.com

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