The automotive industry is one of the main economic drivers and a key factor in real estate development in Mexico. Representing nearly a third (27%) of the industrial real estate market and having grown 2.4 times over the past four years, according to SiiLA data, this sector is the largest foreign exchange generator in the country, surpassing remittances and tourism. Odracir Barquera, CEO of the Mexican Automotive Industry Association (AMIA), noted that it contributes approximately 4.7% of the national GDP and creates millions of direct and indirect jobs. Additionally, it accounts for 32% of Mexico's total exports, making it the most profitable sector in the country.

According to industry analysts and investors, including Barquera, and executives from companies such as General Motors, Navistar, Nissan, Renault, and Toyota, cited in a BBVA report, the automotive industry must address several challenges to continue developing and strengthening its position in the global supply chain. These include the transition to electric vehicles and investment in technological infrastructure, the growing competition from Chinese cars, and regulatory issues related to illegally imported used vehicles, known as "autos chocolate" (or "grey market cars").

Electromobility and Production Efficiency

Regarding the transition to electric vehicles, experts mentioned that Mexico requires significant investment in technology and infrastructure, including manufacturing cars, developing a network of charging stations, and technical training to maintain these new models.

Currently, between 3% and 4% of the light vehicles manufactured in Mexico are electric or hybrid. However, by 2030, the National Auto Parts Industry (INA) estimates that electric vehicle production will account for 23.9% of Mexico's total vehicle manufacturing.

Regarding production processes, experts emphasized the need for significant improvements, especially as the increasing presence of Chinese cars in the Mexican market poses an additional challenge. These brands often offer competitive prices, forcing local companies to improve efficiency and reduce costs.

Data from SiiLA Market Analytics indicates that although the industrial area occupied by Asian automotive companies grew at half the rate of American and European companies over the past four years, their national expansion, particularly of Chinese and Korean brands, has accelerated. According to INEGI figures, 39% of the light vehicles produced in Mexico during this period belong to Asian brands.

Regulatory and Environmental Issues

Modernization, technification, and competitiveness in the automotive sector are not the only challenges faced by one of Mexico's most important manufacturing industries.

The automotive industry also faces significant regulatory challenges, such as the issue of "autos chocolate." These illegally imported vehicles undermine market integrity by creating unfair competition for manufacturers and distributors who comply with the law, distorting prices and harming legally established businesses. Additionally, they reduce tax revenue due to the evasion of taxes and duties.

Moreover, these cars pose safety risks because many do not meet established standards, increasing the likelihood of accidents and endangering drivers and pedestrians. They may also lack proper maintenance and have hidden defects, increasing the risk of mechanical failures. This not only jeopardizes the safety of the users but also raises concerns about the industry's commitment to consumer safety.

From an environmental perspective, these cars are often older models with outdated technologies, emitting significantly higher levels of pollutants than modern vehicles. This contributes to air pollution and exacerbates environmental problems in Mexican cities. This issue is particularly severe given that the BBVA report highlights that the average age of vehicles in Mexico is over 16 years, presenting a considerable environmental challenge.

Renewing this fleet with less polluting technologies will require significant effort from automakers and the Mexican government. This renewal is crucial not only to reduce pollution but also to improve energy efficiency and road safety. Implementing incentives for purchasing new vehicles and creating scrappage programs for older cars could help accelerate this renewal process.

Financing and Competition

Finally, experts indicate that vehicle purchase financing has been and will continue to be substantial for the sector's future as it strengthens vehicle commercialization and business profitability.

In this regard, the report's data indicates that financial subsidiaries, entities created by automotive companies to offer financing directly to vehicle buyers, have proven particularly effective.

According to BBVA, in April 2023, financial subsidiaries accounted for 78.7% of new light vehicle financing, banks held a 19.53% share, and self-financing was just 1.7%. By April 2024, financial subsidiaries slightly increased their share to 80.11%, banks' share dropped to 18.54%, and self-financing decreased to 1.35%.

These data demonstrate the diversification and competition in automotive financing methods, reflecting the vitality and dynamism of the financial sector in Mexico, which is essential for the sustained development of the national vehicle and parts manufacturing industry.

For more information on industry trends in Mexico, explore SiiLA REsource or contact us at contacto@siila.com.mx.