Mexico is set to be a big winner in the EV revolution

The electric vehicle (EV) market is exploding worldwide. By 2030, the International Energy Agency PROPHESIES that 60% of all vehicle sales worldwide will be EVs. And in the US, despite total vehicle sales declining 8% annually through 2022, sales of EVs jump 65%, according to DATA from the Kelly Blue Book. Although countries like China are grabbing headlines in the EV race, the biggest beneficiary of all the expansion may be Mexico.

“Mexico has unique advantages that will help strengthen its position in the automaking industry amid the EV transition,” UBS’ Alejo Czerwonko, chief investment officer (CIO) for Emerging Markets Americas, and Gabriela Soni, CIO for Mexico, explained in a note on Thursday. .

Mexico has the world’s tenth largest store of lithium, which is a key ingredient used in EV batteries often referred to as “white gold” in the industry. And the current strength of the country’s auto manufacturing, combined with the rise of nearshoring — where manufacturers rework supply chains closer to home — in the wake of supply chain disasters during the pandemic, is likely to will make it an EV powerhouse in the future, Czerwonko and Soni said.

But the pair is also careful to warn that EV success in Mexico is not guaranteed, and that it “faces a long road ahead” due to one key factor: a lack of the necessary energy infrastructure. to keep everyone engaged in EV manufacturing.

Serious EV Advantage

Mexico is now the fourth largest exporter and seventh largest producer of automobiles worldwide, and hosts many big name automakersincluding Toyota, Come on, Volkswagenand Nissan. Ford even builds the Mustang Mach-E EV at The Cuautitlán Stamping and Assembly Plant in Cuautitlán Izcalli, about 20 miles outside of Mexico City.

Several automakers have also recently announced moves to Mexico to produce EVs. General Motors (GM) SAYS last year it will build the 2024 Blazer EV and Equinox EV at its factory in Ramos Arizpe, a northern city in the state of Coahuila. BMW just said Last month that it will invest $866 million in EV production in the country. and Tesla announced plans for a $5 billion Gigafactory in Monterrey, Nuevo Leon, Mexico, about 120 miles from the US border last week.

Local officials say the 4,200-acre site is nearly twice the size of the EV giant’s facility in Texas.

“This is a game-changer for a transition from a traditional industry to an industry of the future, a green industry,” Nuevo Leon Governor Samuel Garcia said on Friday, adding that it will be will lead to $10 billion in total investment in his state in the future. years, Bloomberg reported.

Czerwonko and Soni called Tesla’s move “a vote of confidence in the Mexican auto manufacturing industry and its hopes of gaining market share in the global electric vehicle (EV) space,” and said it just one of the many data points that show Mexico has already benefited from. near the beach. In the first nine months of 2022, direct foreign investment in Mexico increased by 29.5%, the most since 1999, according to DATA from the Confederation of the National Chambers of Commerce of Mexico (CONCANACO).

The energy challenge

Despite all its advantages, however, the lack of a solid energy infrastructure is a problem when it comes to EV production in Mexico. EV production facilities are as energy-intensive as the vehicles they produce.

Czerwonko and Soni of UBS said energy availability is a major source of concern for them because of Mexico’s dependence on fossil fuels and constant power. outages. Mexico is aware of the problem, and Foreign Minister Marcelo Ebrard said last month that he would support more manufacturing hubs for EVs in the country by building five large solar plants to produce 5 gigawatts of energy capacity. she SPOKE Reuters that he hopes to attract all the foreign investors he can to the project, as BMW, Audi, GM, Fiat Chrysler, and, of course, Tesla have all expressed interest in producing EVs in the country.

“Major questions remain regarding the financing of such an ambitious plan, as well as the efficiency and ability of the state-owned power company’s operational management to deploy an investment of such scale ,” warned UBS’ Czerwonko and Soni, arguing that “significant additional investment. is needed to develop renewable energy sources in Mexico.”

The UBS team noted that Mexico hopes to obtain funding for its energy project through the North American Development Bank (NADB), which was created by the governments of Mexico and the US to help finance infrastructure projects. But that is not a sure thing.

“It seems unlikely that the NADB will provide the amount of resources needed by the Mexican government. Therefore, the plan will likely require a mix of private, public, and development bank funding,” they warned.

Plan for the future

However, the electricity utility of the state of Mexico CFE has begun work on its first solar plant, which is the largest in all of Latin America, in the northern state of Sonora. The government too plans to expand its total renewable energy capacity to 30 gigawatts by 2030.

Mexican President Lopez Obrador nationalized lithium production in 2022 as well, and established a state-owned company called LitioMx to manage its exploration, mining, and refining. Last month hoping to attract foreign investors. The company is already in talks with Canadian lithium miner Advanced Lithium to mine the metal for EV battery production, Reuters reported reported Thursday.

Czerwonko and Soni said that, in general, they believe that Mexico “can take advantage of the emerging EV opportunity,” as long as public-private partnerships work as intended.

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