Mexico to double car production capacity by 2020

The Mexican automotive industry is expected to see its production capacity double between 2010 and 2020, according to a study published by US-based Center for Automotive Research (CAR).

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Annual car output in Mexico is expected to reach around 6 million units in 2020, compared with 2.92 million in 2010 and 3.93 million in 2015.

Meanwhile, the country is expected to produce 5 million cars per year between 2018 and 2019, against 3.48 million in 2015.

Mexico has become a key destination for investment from carmakers and auto parts producers, according to CAR.

“Mexico has captured nine of the past eleven new assembly plants [planned] for the continent since 2011,” the study says.

Between 2010 and 2015, the country has received $13.30 billion in investments from German, Japanese and South Korean carmakers, according to the researchers.

CAR said that Mexico is seeing “unprecedented” growth in its exports, due to the large number of trade agreements with other countries.

In turn, labour costs in the automotive industry have been relatively stable in the past decade.

These factors are behind the boost in investments in the country’s auto sector, according to CAR.

“Mexico’s ability to compete for new North American automotive investments stems largely from the country’s relatively lower labour costs, and [the] advantages [of the country’s wide range of] free trade agreement with the rest of the world,” it said.

In turn, the USA’s share of vehicle production in North America is expected to drop to 58% by the end of the decade, compared with an estimated 66% in 2015.

“Much of the reduction in US share is due to new production coming online in Mexico rather than shuttering and moving current US production capacity out of the country,” CAR said.

But companies expanding operations in Mexico may struggle with a lack of availability of steel products, since only a small fraction of the country’s steel production is automotive-grade, according to the report.

“While the supply chain has largely been able to handle the demands of the automotive industry thus far, many of the conventional materials produced in Mexico are not automotive grade,” CAR said.

In Mexico, the price of hot rolled coil (HRC) is about 4.40% lower than in the USA, while costs of cold rolled coil (CRC) is 2.60% lower, according to the research.

Despite a relatively small price difference, importing steel products would lead to higher logistical costs.

In the past few years, several steelmakers have announced investments focused on supplying the automotive industry in Mexico.

Mexico’s Tenigal – a joint venture between Ternium and Nippon Steel & Sumitomo Metal Corp (NSSMC) – will double its production capacity of hot dipped galvanized coil (HDG) to supply the Mexican automotive and industrial sectors.

Compatriot steelmaker Grupo Simec also plans to invest $600 million in a special bar quality (SBQ) mini-mill facility in Mexico dedicated to producing products for the automotive, energy and capital goods industries.

And the world’s biggest steelmaker, ArcelorMittal, announced in September 2015 an investment of $11.10 million in a new tube facility in Mexico, to increase the supply of automotive components in the country.

Mexico’s car production reached 1.96 million units between January to July 2016, down by 1.20% year-on-year, according to the country’s auto association, Amia.

Steel components make up about 56% of a vehicle’s weight and represent around 8% of its sales value, according to Brazilian steel institute Aço Brasil.