How Mexico is becoming a magnet for EV investments

Mexico's electric vehicle sector has seen a flurry of new investment announcements in recent months, with yet another large manufacturer expecting to enter the country in the coming months.

The announcements include those by BMW, who recently said it would put 800mn euros (US$860mn) into its San Luis Potosí plant to manufacture batteries, and firms like Evergo and Cenntro Automotive.

They include growth in overall vehicle production, parts manufacturing, charging station buildout, and the production of electric vehicles.

The biggest investment announcement on the horizon is the long-rumored push by Tesla to build its next "gigafactory" in the country. While the announcement has reportedly stalled due to issues such as securing sufficient power supply, its confirmation would be a large boon for Mexico's ambitions to becoming an electric vehicle manufacturing hub targeting the US, the second largest automobile market in the world.

President Andrés Manuel López Obrador said Wednesday during his daily press conference that the company was eyeing the states of Nuevo León and Hidalgo as potential sites for the factory. Nuevo León, which borders Texas, has long been rumored as the company's preference. Hidalgo, meanwhile, borders central Mexico state, where presidential spokesman Jesús Ramírez said Tesla would build an export-focused facility.

The plant has been the subject of rumors and speculation in recent months, especially regarding Tesla's relationship with federal power utility CFE, and the terms of a potential deal to supply the plant's power. Indonesian President Joko Widodo has said he is "confident" that Tesla will choose the Asian country over Mexico to build the factory. Other nations reportedly being considered by Tesla include Canada and South Korea.

These new and potential investments slot into a long trend in Mexico, with several car manufacturers announcing growth strategies in the region focused on EVs. 

US car maker Ford said in 2021 it would triple its manufacturing capacity of Mach-E electric SUV at its Mexico state plant in Cuautitlan this year, to 210,000. The move is part of US$50bn worldwide investment to grow its electric vehicle output to 2mn per year by 2026. In 2021, Ford produced 64,000 units.

The same year General Motors announced it would invest over US$1bn at its Ramos Arizpe plant to build new paint and assembly facilities, partly meant to start electric vehicle production this year, and produce them exclusively starting in 2024. The complex also produces batteries and other electric components. 

Last October, Canadian sports vehicle manufacturer BRP said it would build its first electric motorcycle manufacturing plant in Querétaro state, with production of its two electric models set to start by March of 2024.

Several European firms, including Germany's Volkswagen and Audi, as well as multinational Stellantis, owner of Peugeot and Fiat, have unveiled expansion plans for their plants in Mexico to start electric vehicle construction between 2025 and 2027. While Volkswagen said the investment in its Puebla plant would total US$764mn (including non-EV related overhauls), the others are yet to provide a figure.

The influx of new production has led to major investments by service and parts suppliers anticipating higher demand, including Taiwanese electronics manufacturer Foxconn, Japanese electric motor manufacturer Nidec, and German automotive supplier Sodecia, which already owns a plant in Coahuila. 

Nidec said it was considering investing around US$760mn to build a factory in an unspecified state.

Chinse battery producer Contemporary Amperex Technology (CATL) said it was eyeing a new US$5bn plant in Ciudad Juárez, Chihuahua state, or in the state of Coahuila, to supply US and Mexican manufacturers, including the potential Tesla facility. Car painter Navistar also said it would grow its Nuevo León plant in light of stronger demand.

Mexico also has large deposits of lithium, a key component of the batteries used by manufacturers of electric vehicles. The US government’s Inflation Reduction Act, which is focused on clean energy, requires North American sourcing of parts for electric vehicle manufacturing to access the bill's coveted subsidy scheme. While the issue of how lithium will be exploited in Mexico is still controversial, López Obrador has said some forms of private extraction will be allowed.

The seventh-largest car manufacturing nation in the world, Mexico has set goals for half of its production to be hybrid or electric by 2030. Today, it produces approximately 3mn cars per year, according to the International Trade Administration, with the vast majority made for export. In 2021, around 50,000 of the vehicles were electric.