Brokerage Viewpoint | Automobile Overseas Series: Targeting Mexico, Chinese Parts And Components Start Global Supply

The current situation of the Mexican automobile industry: trade policy promotion, North American automobile manufacturing "back garden." The Mexican automobile industry began in 1902. Since the North American Trade Agreement, Mexican automobile production and sales have experienced rapid growth. 1) The current situation of complete vehicles in Mexico is a mismatch between production and sales, and output is mainly exported. Mexico's annual automobile production is currently stable at around 3 million units, and its production capacity is mainly based on U.S. demand. Pickups and SUVs account for a relatively high proportion, accounting for about 30% and 50%, respectively. Exports account for about 85% of production. The domestic sales of Mexican cars are only about 1 million, which is only 1/3 of the production. Moreover, due to the large gap between the rich and the poor in Mexico's domestic sales, the demand for A0-class and A-class cars is high. In 2022, the sales volume of A0 and A-class cars will account for about 40%. 2) The current status of Mexican parts and components is that they are mainly traditional auto parts. Mexico's auto parts industry has grown with the growth of OEMs and foreign investment. Its output value in 2010 was approximately US$51.3 billion, and will grow to US$104.9 billion in 2022. Judging from the proportion of parts classification, traditional auto parts such as transmissions, engines, and other parts are the main ones. Among them, export output value accounts for a relatively high proportion, accounting for approximately 85% in 2022, mainly supplied to the United States. Driven by multiple positive factors, the Mexican automobile industry chain has broad room for growth. From 2020 to 2022, the total annual sales volume of automobiles in the United States, Canada, and Mexico will be about 24 million, and the total yearly production will be about 14 million vehicles, leaving a large production capacity gap. By country, the average annual production capacity gap in the United States exceeds 10 million vehicles, Canada has balanced production and sales, and Mexico's domestic automobile industry is mainly responsible for export tasks. Mexico is expected to become an increasingly important part of production capacity. The "U.S.-Mexico-Canada Agreement" and the "Anti-Inflation Reduction Act" have increased the origin requirements for auto parts, which is expected to enhance further Mexico's position in the North American new energy vehicle manufacturing industry. At the same time, Tesla, a global new energy vehicle company, announced the construction of a Mexican super factory. The annual production capacity of Tesla's Mexican factory is expected to reach 2 million vehicles. Construction is scheduled to start in 2024 and put into production in 2025. Ford, General Motors, and other car companies are also accelerating their transformation into new energy sources and expanding their factories in Mexico. Driven by policies and industry trends, production capacity is expected to continue to grow later, and the Mexican industrial chain will usher in multiple benefits. Many Chinese parts and components companies have started their journey to Mexico. Mexico's oil truck industry chain is relatively mature. Under automobiles' electric and intelligent transformation, there is a large demand gap for lightweight, thermal management, and other parts. Therefore, corresponding parts companies have successively planned to add production capacity in Mexico.