Why Mexico is becoming the leading destination for automotive companies

Industry Investment Rating - The report highlights Mexico as a prime candidate for nearshoring, particularly for the automotive industry, due to its competitive advantages such as lower labor, energy, and transport costs, as well as proximity to the US market [4][11][12] Core Viewpoints - Mexico has become a leading destination for automotive companies due to its significant cost advantages, strong supplier base, and favorable trade agreements [4][11][12] - The country received USD 43.9 billion in foreign direct investment (FDI) in 2023, making it one of the top 15 FDI-receiving countries globally [3][16] - Mexico offers a 35% total landed-cost advantage over China, with labor costs 30% lower than in China, and this gap is expected to widen through 2030 [19][20][21] - 78% of surveyed automotive OEMs and suppliers are either conducting or assessing nearshoring to Mexico, with assembly operations being the most cited fit [5][6] Summary by Sections Introduction: Nearshoring – Coming to a Place Near You - Globalization has faced challenges due to geopolitical tensions, the COVID-19 pandemic, and the Ukraine war, leading companies to shift production closer to major markets like the US and China [9] - Nearshoring is becoming a trend, with Mexico emerging as a key destination for automotive companies [9][10] Why Mexico? Competitive Advantages - Mexico offers lower nominal hourly wages and electricity costs compared to China and Vietnam, making it a cost-effective manufacturing hub [12][14] - The country benefits from its proximity to the US, lower transport risks, and a robust automotive supplier base [4][11] - US FDI outflows to Mexico have surged, surpassing those to China, with USD 10 billion in 2022 and USD 43.9 billion in 2023 [3][16] Manufacturing Costs in Mexico vs. China - Mexico has a 35% landed-cost advantage over China, driven by lower labor and freight costs, with the gap expected to grow to 45% by 2030 [19][20][21] - Shipping costs from Mexico to the US are 56% lower than from East Asia, with 90% of freight traveling by ground transport [20] Automotive Industry Opportunities - Mexico's proximity to the US enhances its appeal for automotive manufacturers, offering benefits such as improved quality control, cost efficiency, and supply chain visibility [27] - Recent US regulations, including the USMCA and the Inflation Reduction Act, further boost Mexico's attractiveness for automotive production [28][29] Investment Trends in Mexico - Major automotive companies like GM, Tesla, BMW, Volkswagen, and ZF Group have announced significant investments in Mexico, focusing on electric vehicle production [34] - Vehicle production in Mexico is expected to grow at a CAGR of 4.3% between 2021 and 2029, outpacing North American production growth [35][36] Best-Fit Automotive Sectors for Nearshoring - Assembly operations, wiring, chassis, and body structures are the most viable components for nearshoring to Mexico, with significant cost savings compared to China [6][40][41] - EV powertrains are expected to become a high-potential category for nearshoring as EV production increases [42][43] Planning and Execution for Nearshoring - Key success factors for nearshoring to Mexico include navigating bureaucracy, mitigating security risks, adapting to cultural differences, and ensuring cost-competitive production [44] - Companies must also consider access to a capable supply base, skilled labor, and key resources like energy and water [44][45]