Mexico to Become World’s Fourth-Largest Producer of Auto Parts by 2023
By Alejandro Lara | Board Member at American Industries Group®
Currently, Mexico is the world’s largest exporter of US automotive parts and the fifth-largest producer of auto parts globally. Production in this industry reached US 94 billion annually in 2021, and experts expect this number to increase to US 102 billion by 2023. This growth would move Mexico’s ranking up to number four, replacing Germany. Many factors have contributed to the steady growth of automotive manufacturing in Mexico in recent decades, and a recent reshoring trend has accelerated even further due to rising shipping costs and the US’s ongoing trade war with China.
A recent factor contributing to the expansion of automotive manufacturing in Mexico is the updated NAFTA agreement, known as the United States-Mexico-Canada Agreement (USMCA), which went into effect in July of 2020. It contains several updated provisions relating to auto parts and auto manufacturers. One of the main ones is an increase in regional value content (RVC) requirements. It establishes an RVC of 75% (up from 62.5% under NAFTA) for automobiles and a similar threshold for core, principal, and complementary parts. In addition, it introduces new origin procedures aimed at reducing the burden on automotive producers.
Reshoring trend to reduce dependency on China
On the other hand, many companies in the automotive and auto parts industries are looking to start up manufacturing in Mexico to reduce dependency on China. The instability produced by an ongoing US-China trade war has intensified with the imposition of 25% tariffs on China. Furthermore, recent astronomical increases in shipping costs, major disruptions to supply chains (especially in Asia), significant delays and cost increases for container shipping, slowdowns in production and business caused by the pandemic, and poor logistics, have also contributed to the reshoring trend.
Mexico is poised to take advantage of this and offers a variety of additional opportunities for international companies looking to expand or relocate. Not only does its privileged location bordering the US allow manufacturers to save over 80% on time and shipping costs compared to China, but it also allows them to minimize inventories and improve logistics processes overall.
Strong regional networks in the automotive industry
Automotive manufacturing Mexico has very well-established production clusters. One of the most notable is the Guanajuato region, where companies looking to start up operations in Mexico will find the greatest concentration of OEMs in the country; four of the world largest automakers have major facilities there: Mazda, Toyota, Honda and GM.
Some of the main products in the auto and auto parts industry include harnesses, wires and cables; die-cut parts and accessories for car bodies; seats and their parts; gearboxes and parts thereof; brake mechanisms; internal combustion engines and lighting and visual signaling devices, among many other parts and processes available.
As companies around the world continue to look for ways to reduce risk, improve logistics, and evolve to meet the demands of this new era, Mexico continues to grow and consolidate regional supply chains, offering a variety of benefits in the automotive industry. Don’t hesitate to contact us if you would like to learn more about how starting up manufacturing services in Mexico can help your business grow.