EU sees Mexico’s potential in electric car value chain

This year will mark a record in the production value of the auto parts sector with more than 101,000 million dollars in turnover; The market can be detonated with the tax credits that the US will grant to the purchase of electrical units

Mexico has potential for the production of auto parts for electric vehicles, highlighted the United States Department of Commerce (USDOC) at a key moment in the transition from internal combustion vehicles to electromobility.

Within the framework of this USDOC recommendation, the Bloomberg agency reported on Friday that Tesla is about to announce an electric car production plant in the city of Nuevo León, Mexico, referring anonymous sources.

According to the USDOC, there are six main subsectors in the Mexican automotive industry: original equipment parts, aftermarket parts, electric and hybrid vehicles, specialized equipment, and remanufactured products.

Of these subsectors, the Commerce Department sees strong opportunities in original equipment parts, the aftermarket, and parts for electric vehicles.

In the United States, multiple factors determine whether an electric vehicle purchased in 2022 is eligible for federal tax credits.

Many electric vehicles purchased before August 16, 2022 are eligible for a tax break of up to $7,500 (with smaller amounts available for certain makes and models).

Vehicles made by Tesla or General Motors purchased in 2022 are not eligible for the tax credits, as Tesla and General Motors have passed the 200,000 vehicle threshold that limits the number of tax credits that can be claimed for vehicles made by one manufacturer .

In Mexico, the Secretary of the Economy, Raquel Buenrostro, commented on December 7: “Many of the automotive companies that are already starting to work -and we are already talking with them- are technological reconversions of the plants, to change their internal combustion engines to electromobility. So, these investments will come for technological changes”.

After being worth $97.8 billion in 2019, the year before the pandemic, Mexican auto parts production fell to $78.4 billion in 2020 and recovered to $94.7 billion the following year. This year it will break a record by exceeding 101,000 million dollars.

Mexico has a high level of competitiveness in the production of automotive parts, with Mexican companies such as Katcon, Metalsa, Vitro, Rassini, Sisamex KUO and Nemak, increasingly internationalized, while the country occupies the first position as an external supplier of auto parts to the United States.

The specific rules of origin of the Treaty between Mexico, the United States and Canada (T-MEC) are stricter, since the thresholds to confer origin -and with it, tariff benefits- are higher, particularly in the case of certain sectors such as automobiles, steel, and aluminum.

For example, for many automotive products, the Regional Value Content (VCR) increased from 62.5% in the North American Free Trade Agreement (NAFTA) to 75% in the USMCA.

roberto.morales@eleconomista.mx