Mexico’s electric vehicle (EV) market is growing fast and is expected to contribute two-thirds of EV and hybrid sales in Latin America by 2030, with new EV manufacturing projects driving this growth. Mexico is the seventh largest passenger vehicle manufacturer globally, with an annual output of approximately three million vehicles. As more EV manufacturers establish factories in Mexico, we expect it to become a major EV-producing hub. With the recent announcement that Tesla will be opening a Gigafactory in Monterrey, we foresee other automakers flocking to the market.
Mexico's EV Market
Although Mexico’s EV market is in a nascent state, we expect it to grow significantly over the next decade. In 2022, EV and hybrid production in Mexico stood at 78,000, a figure that is expected to rise by roughly 80% in 2023.
At present, the automotive industry contributes 3.5% of Mexico’s GDP and 20% of its manufacturing GDP. It also provides over one million jobs. While most of this manufacturing is centered around internal combustion engine (ICE) vehicles, as automakers expand their hybrid and EV production, we anticipate a shift in production trends that will benefit Mexico's industrial zones.
All eyes are on China, with expectations of it quickly becoming the biggest EV producer globally. However, as Mexico already has a strong car manufacturing industry, as well as the 10th largest lithium reserves worldwide – a key component for battery production, we expect it to quickly become a major EV hub.
Several major automakers have already announced plans for EV production in Mexico. For example, General Motors plans to manufacture its 2024 Blazer EV and Equinox EV in Coahuila, and BMW has announced plans to invest $866 million in EV production in Mexico. And with major existing production sites from Toyota, Kia, Volkswagen, Nissan, and Ford across the country, we expect several more EV operations to be announced in the next few years.
At the beginning of March, Tesla announced plans to construct a new Gigafactory in Mexico, its first outside of the U.S., Germany, and China. The plant will be built in Monterrey, Nuevo León, around a three-hour drive from Texas, providing efficiencies for its supply chain. Tesla has acquired 4,200 acres of land for the development, according to the state’s governor Samuel García. This is roughly twice the size of Tesla's Gigafactory plant in Texas.
We expect the new Tesla plant in Monterrey to generate significant tax revenue for Mexico and will support the expansion of its EV market. Tesla CEO Elon Musk plans to invest $1 billion in the plant initially, which could increase to $10 billion over time. The factory is expected to produce over a million EVs a year, which would make it the largest EV factory in the world.
The development of the new factory will help alleviate U.S. concerns about the future of its supply chains, having relied heavily on China in the past for its EV and battery production. The USMCA fair trade agreement between Mexico, the U.S., and Canada has already boosted trade relations between the three states, decreasing America’s reliance on China for its vehicles. Further, the made-in-America rules for cars to qualify for new subsidies, introduced by U.S. President Biden, include exceptions for Canada and Mexico, supporting regional developments, such as the Tesla Gigafactory.
Our Outlook for EVs Remains Positive
We expect Mexico to build on its strong automotive manufacturing industry to attract new EV production across the country. Investments in major new factories by some of the world’s biggest automakers will also help rapidly develop Mexico’s EV market, allowing it to become one of the biggest producers in Latin America, and potentially worldwide