11 Sep 23

Lots of lithium and cheap labour: Mexico, the next EV giant

Mexico has not played a visibly prominent role in the global rise of EVs so far, but that is about to change. Tesla is building a Gigafactory in Mexico, and that’s just one of many new EV-focused investments in the country, which is turning into a huge assembly plant for EVs. 

With China no longer a cheap labour market, Mexico is now eager to make the most of its labour cost advantage, not to mention its rich resources. 

The country seeks to position itself as a key player for the global EV market, ready for both rises in consumption and competition. 

The Mexican government’s EV target is 50% of new car sales by 2030. That’s a big figure, but there are massive sums at play: already by Q2 of this year, Mexico received over $5 billion in foreign direct investment from the U.S. for automotive manufacturing. 

Future potential

That’s more than any full year in the past. And in the first nine months of fiscal 2023, the amount of exported automotive products grew by 14.2% and car manufacturing surged by 14%.

Mexico's car manufacturing capacity also has lots of future potential. According to CleanTechnica, Mexico produced a little over 3.5 million cars in 2022, falling just short of Germany's 3.68 million and South Korea's 3.56 million. 

However, out of 1.1 million new cars sold in Mexico last year, only 5,600 were EVs, says Mexico's Auto Industry Association (AMIA).That’s just 0.5% of domestic auto sales. Nevertheless, the production rate of EVs in Mexico is expected to jump from 78,000 in 2022 to over 220,000 by the end of 2023. 

Not that all is smooth sailing. U.S. auto seating company sees a few hurdles on the road to a healthy operational environment for the Mexican auto industry: supply chain disruptions, inflationary pressures, and volatility in commodity prices. 

Additionally, Mexico still has a long way to go before its domestic market can become a significant target for EVs. AMIA is concerned about the lack of government incentives, as wages in Mexico are too low to afford many EV models. 

For instance, Zacua, one of the EV makers in Mexico, offers two models, MX2 and MX3, at around 600,000 pesos ($32,000). Additional problem: according to the Mexican Automotive Industry Association (AMIA), there are only 1,100 charging stations nationwide. Mexico City-based SEV has also kicked off an ambitious plan to spread its presence across Mexico to push new models to consumers and grab 3% of the domestic auto market.

Tide is turning

But the tide is turning, and the list of investments in the Mexican EV industry is long enough to give a glimpse of the future:

  • The European exploration force is led by BMW, which announced an €800 million investment to produce batteries and all-electric Neue Klasse models in the Mexican state of San Luis Potosi, from 2027. Around €500 million will be spent on the BMW Group Plant for a battery assembly centre, and the rest will be used to extend the body shop and build a new assembly line. BMW also plans to expand Mexico’s charging infrastructure, and has partnered with charging provider Evergo in 2023 to deploy 4,000 AC and DC chargers over five years.
  • On Investor Day 2023, Tesla CEO Elon Musk announced that the EV maker plans to build a Gigafactory in Monterrey, in the state of Nuevo León. According to Chinese media, the Gigafactory Tesla will be bigger than expected, costing double the initial budget of $5 billion and employing 7,000 workers. According to LatePost, Giga Mexico will start production in early 2025 and assemble two million vehicles a year. Governor of Nuevo Leon Samuel Garcia confirmed this amount to Bloomberg News, saying that Tesla will spend this budget in different phases.
  • Volkswagen and Continental announced an investment in Mexico last year of nearly $1 billion. About $764 is to be spent on Volkswagen's plant in Puebla, which will start producing several EV models in 2026. On the other hand, the German auto parts maker Continental will spend around $210 million for a new electronics factory and expand capacity in its Guanajuato plant. 
  • Chinese new energy vehicle giant BYD plans to sell 5,000 EVs in Mexico in 2023 through its distributors in Mexico City and Guadalajara. According to El Economista, BYD is running an analysis for a plant that will serve Mexico and Latin America and will most likely be built in Mexico. 
  • Stellantis announced a $200 million investment in its Saltillo Van Assembly Plant to produce an all-electric 2024 Ram ProMaster, expected to be launched by the end of 2023. 
  • MG, owned by China’s SAIC Motors, entered the Mexican EV market with a $16 million investment, marking the country as a springboard to enter the US market. By the following year, MG had established 15 dealerships and sold over 1,000 EVs. In 2023, MG launched a plug-in hybrid SUV in Mexico to reach 5.5% of the market share by the end of the year and announced its plans to open a plant in the country.
  • Chinese battery giant Contemporary Amperex Technology (CATL), which almost became an indispensable piece of global EV developments, has announced its plans to build a plant in Ciudad Juárez, Chihuahua state, to supply the domestic and foreign EV makers, including the Tesla Gigafactory. In late 2022, this plan was delayed down due to concerns about costly source materials. 
  • Chinese vehicle assembler Jetour announced its plan to establish an assembly plant in Mexico in 2024 through an investment of $3 billion. The plant will manufacture combustion-engine vehicles first, then switch to battery-electric vehicles in two to three years. 
  • German automotive supplier Sodecia announced a $36 million investment in its plant in Ramos Arizpe, Coahuila, last year to increase production by 70% and meet the supply demands of OEMs investing in the country.

Lithium deposits

In addition to the investments above, Japanese electric motor manufacturer Nidec is planning the construction of a $715 million plant in Mexico, while Taiwanese Foxconn is preparing to increase production capacity to meet the demands of the rising EV industry. 

The Mexican EV industry is growing, and the lithium deposits are also waiting to be mined, offering enormous resources for the battery industry. The state of Sonora holds 244 million tonnes of lithium, a reserve enough for around 250 years, according to the mining company Bacanora Lithium. With so much investment and rich deposits of minerals, Mexico is becoming the perfect ground for making EVs and bridging development between North America and Latin America. 

Tha main image is courtesy of Zacua. The in-article image shows Zacua MX3, courtesy of Zacua.

Authored by: Mufit Yilmaz Gokmen