Mexico will be the big winner of the EV revolution
The electric vehicle (EV) market is exploding worldwide. By 2030, the International Energy Agency predicts that 60% of all vehicle sales worldwide will be electric vehicles. And in the U.S., electric vehicle sales rose 65%, according to data from Kelly Blue Book, even as overall vehicle sales fell 8% year over year in 2022. Although countries like China have made headlines in the EV race, Mexico could be the biggest beneficiary of this expansion.
“Mexico has unique assets that could help solidify its position in the automotive industry amid the EV transition,” said Alejo Czerwonko, UBS’s chief investment officer (CIO) for Emerging Markets Americas, and Gabriela Soni, CIO for Mexico , in a statement on Thursday .
Mexico has the 10th largest lithium reserve in the world, a key component of electric vehicle batteries commonly referred to as the industry’s “white gold”. And the country’s current strength in auto manufacturing, coupled with an increase in nearshoring — where manufacturers are revamping supply chains closer to home — following pandemic-era supply chain glitches, is likely to make it an electric vehicle powerhouse in the future, Czerwonko and Soni said.
But the pair also warned that Mexico’s EV success is not guaranteed and that it “has a long way to go” due to a key factor: a lack of the power infrastructure necessary to engage in EV manufacturing.
Serious EV benefits
Already the fourth largest exporter and seventh largest producer of cars in the world, Mexico is home to a number of well-known car manufacturers, including Toyota, Kia, Volkswagen and Nissan. Ford even produces its Mustang Mach-E EV at the Cuautitlán Stamping and Assembly Plant in Cuautitlan Izcalli, about 20 miles outside of Mexico City.
Several automakers also recently announced plans to move to Mexico to produce electric vehicles. General Motors (GM) said last year that it will build the 2024 Blazer EV and Equinox EV at its plant in Ramos Arizpe, a northern city in the state of Coahuila. BMW said just last month it would invest $866 million in EV production in the country. And Tesla last week announced plans for a $5 billion gigafactory in Monterrey, Nuevo Leon, Mexico, about 120 miles from the US border.
Local officials have said the 4,200-acre site is nearly twice the size of the EV giant’s Texas facility.
“This is a turning point in the transition from the traditional industry to an industry of the future, a green industry,” Nuevo Leon Governor Samuel Garcia said on Friday, adding that this will lead to a total investment of 10 billion in the future dollars in his state years, Bloomberg reported.
Czerwonko and Soni called Tesla’s move “a vote of confidence in the Mexican auto industry and its hopes of gaining market share in the global electric vehicle (EV) space,” noting that it’s just one of many data points showing Mexico is already on the up benefits from nearshoring. In the first nine months of 2022, foreign direct investment in Mexico grew by 29.5%, the highest since 1999, according to data from the Mexican Confederation of National Chambers of Commerce (CONCANACO).
The Energy Challenge
Despite all the benefits, however, the lack of a stable energy infrastructure is a problem when it comes to EV production in Mexico. EV manufacturing facilities are incredibly energy intensive, as are the vehicles they produce.
UBS’s Czerwonko and Soni said energy availability was a major concern for them due to 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 several electric vehicle manufacturing centers in the country by building five giant solar arrays to generate 5 gigawatts of power capacity. He said Reuters that he hoped to attract whatever foreign investors he could to the project and found that BMW, Audi, GM, Fiat Chrysler and of course Tesla had all expressed interest in producing electric vehicles in the country.
“Big questions remain about the funding of such an ambitious plan, as well as the efficiency and operational capability of the state-owned energy company to undertake an investment of this magnitude,” warned UBS’s Czerwonko and Soni, arguing that “significant additional investment is required to develop Mexico’s renewable energy sources. “
The UBS team noted that Mexico hopes to raise funds for its energy project through the North American Development Bank (NADB), which was set up by the Mexican and US governments to help fund infrastructure projects. But that’s not for sure.
“It seems unlikely that the NADB would provide the amount of resources that the Mexican government requires. As such, the plan will likely require a mix of private, public and development bank funding,” they warned.
planning for the future
Nonetheless, Mexican state electric utility CFE has already begun work on its first solar plant in the northern state of Sonora, which will be the largest in Latin America. The government also plans to expand its total renewable energy capacity to 30 gigawatts by 2030.
Mexican President Lopez Obrador nationalized lithium production in 2022 and last month created a state-owned company called LitioMx to manage its exploration, mining and refinement, hoping to attract foreign investors. The company is already in talks with Canadian lithium miner Advanced Lithium to mine the metal for the production of electric vehicle batteries, Reuters reported Thursday.
Czerwonko and Soni said that overall they believe Mexico “can capitalize on the emerging opportunity for electric vehicles” as long as public-private partnerships work as intended.
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