With a number of OEMs announcing investments in the region, is it time to expect another round of investments in the automotive supply base?
Mexico’s light-vehicle production continues to see impressive growth as OEMs announce another series of investments in the region. Conditions are currently favourable for the region, with Mexican automotive plants outproducing those in Brazil in 2014, a trend likely to continue over the next few years.
Last week saw Canadian supplier Magna announced that has begun construction at a new, USD135 million manufacturing plant, which will include a 26,400-square metre facility. Production will be of moulded and painted exterior parts, including fascias and rocker panels for global automakers. Magna will launch production at the plant in the first quarter of 2016. Though this announcement marks the start of the construction phase, there have been a number of announcements by OEMs recently, as they look to ramped up production in 2017:
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Volkswagen (VW) of Mexico plans to invest USD1 billion to prepare its plant in Puebla, Mexico, to assemble a new three-row Tiguan sport utility vehicle (SUV). Production of the new SUV will begin in 2016 and sales in 2017.
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General Motors (GM) has announced a USD87 million stamping-plant investment in its lines at its San Luis Potosi factory, Mexico. The San Luis Potosi plant currently produces the Aveo and Trax for the Chevrolet brand, and had an output of about 130,969 units in 2014. IHS forecasts the plant will add the next generation of the Chevrolet Equinox and GMC Terrain, as well as the Sonic, in 2017, increasing output to about 294,000 units that year and to about 394,000 units in 2020.
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Nissan is investing USD75.39 million in its Cuernavaca #2 plant, Mexico, to prepare it for production of an updated Frontier mid-size pick-up in Mexico. The Mexican plant is expected to produce about 50,000 units per annum of the NP300 Frontier, a double-cab pick-up, involving 700 extra jobs. Most of the volume produced will be for the domestic Mexican market, with some being exported to Latin America. Nissan's investment for the project reportedly includes updating existing production lines.
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Mazda will evaluate adding more models to the production lines at its new Salamanca plant in Mexico, according to Jim O'Sullivan, CEO of Mazda North American Operations.
The announcements mean there is further growth potential for suppliers in the region again. General Motors (GM) de Mexico executive Ernesto Hernandez has confirmed that part of the company's recently announced USD3.6 billion investment in its Mexican production capabilities will include increasing the purchase of locally made parts by 31% by 2018, amounting to about USD18 billion.
In 2014, Mexican light-vehicle sales, production and exports all saw impressive growth. Production grew steadily, with light-vehicle production at a year-end total of 3.21 million units sold. Honda, Mazda, and Nissan's additional capacity in early 2014 and late 2013 helped the region toward another record year. Production continues to be led by Nissan, which produced 18.5% more in 2014 than 2013, at 805,871 units. Following behind Nissan was GM with an output of 678,388 units, marking a decline of 15.7%.
Meanwhile, further investments by automakers and component suppliers in Mexico bode well for the country as a production base in the future. Mercedes has also indicated that it is looking to set up a new supplier network to support both the Mercedes and BMW luxury brands. Audi's plant construction has begun and is due online in 2016, while Kia announced a USD1 billion investment in August 2014. Suppliers also continue to expand their facilities in the country.
Mexico's strategy has created an export production base, taking advantage of the internal resources of the country as well as some transportation advantages. However, though the production and supply base is embedded in the country at this stage, there are still some structural issues for suppliers. Tier one suppliers still rely on imports as the local tier two and raw material supply base are still underdeveloped; an issue that Mexico’s trade associations know only too well.
According to the IHS Automotive production forecast, vehicle output in Mexico will grow from 3.3 million units in 2015, about 18% of North American production, to five million in 2021, at which point it will contribute 26% of the region’s production.
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