Automotive Sector: Relevance and Main Sustainability Challenges

The automotive sector is of utmost importance globally due to its economic impact and its role as a driver of industrial development. This industry not only generates millions of direct and indirect jobs worldwide but also drives technological progress and innovation. Automotive companies and their supply chains contribute significantly to the Gross Domestic Product (GDP) of many countries, promoting investment and international trade.

Mexico is no exception; this sector is a key economic driver. According to data from AMIA, this industry contributes almost 4% of the national GDP and 20.5% of the manufacturing of the country’s GDP. It directly employs more than 900,000 people and generates millions of indirect jobs. Mexico has gradually gained a position as the seventh largest vehicle producer in the world and the largest in Latin America. All the main global automotive brands have production plants in the country. A robust supply chain has grown up around this presence, which  includes everything from auto parts manufacturing to export logistics.

Mexico's strategic location near the United States; one of the largest automotive markets in the world; the quality and experience of its workforce, and a network of trade agreements have made the country an attractive destination for investment in this sector. In addition, the Mexican automotive industry has shown itself highly capable of adapting to global demands and technological innovations, which has strengthened its position in the international market.

One of the factors that has boosted this industry in this region is that the USMCA introduced new rules of origin that require 75% of a vehicle's components to be manufactured in North America to qualify for duty-free trade, up from the 62.5% that was required under NAFTA. In addition, it establishes that 40-45% of the value of automobiles must be produced by workers earning at least $16 per hour. These measures seek to strengthen the regional industry and encourage healthier working conditions for local labor.

These provisions not only ensure a closer integration of the North American supply chain, but raise labor and production standards in the region. For Mexico, the USMCA is an opportunity to consolidate its leadership in automotive manufacturing and attract new investments that seek to take advantage of the benefits of the agreement and nearshoring.

Within this context of growth and opportunity, the automotive industry in Mexico also faces daunting challenges in terms of sustainability. The transition to electric mobility and the reduction of carbon emissions are global imperatives that require significant adaptations.  Another crucial challenge is waste management and resource efficiency. Production plants should adopt circular economy practices, such as recycling materials and reducing waste, and they must invest in technologies that enable cleaner and more efficient production.

In this context, it's worth highlighting that the automotive industry in Mexico is adopting various practices to tackle these challenges. Here are a few examples:

1. Promotion of circular economy and recycling:

Many automotive companies in Mexico are investing in recycling technologies and processes. These include metals, plastics and other components used in vehicle manufacturing. For example, vehicle assembly plants are adopting recycling practices to reuse steel and aluminum, which are highly recyclable and make up a large part of the structure of automobiles.

Some companies are also opting to use sustainable and recycled materials in vehicle manufacturing. Others are exploring business models based on the circular economy, such as remanufacturing parts and components.

2. Energy and water efficiency:

Production plants are implementing energy efficiency programs to reduce energy consumption and minimize carbon emissions. They are also adopting waste reduction practices, such as proper management of hazardous and non-hazardous waste, and are recycling water in production processes.

3. Collaboration with Suppliers and Other Industries

The automotive industry is working in collaboration with its suppliers and other industries to develop more sustainable supply chains. This includes initiatives to ensure that materials and components are responsibly and sustainably sourced, along with efforts to develop technologies and processes that facilitate recycling and reuse.

The automotive industry is a vital component of the Mexican economy and plays a crucial role within the USMCA, however, it faces significant challenges on its path to sustainability. The collective efforts of government, business and society are essential to overcome these challenges and ensure that the industry remains an engine of economic growth and sustainable development in the future. By addressing these challenges with innovation and responsibility, Mexico can maintain its position as a leader in automotive production and advance towards a greener and more sustainable future.

Within this overall context, at BBVA we are committed to sustainability, so we have designed products by which we can accompany our customers in their transition to greener and more inclusive forms of production, for example, sustainability-linked loans, sustainability-linked supply chain finance, through which we can support the transition not only of large corporations but also their supply chain. In addition, BBVA Corporate Banking supports the automotive industry through specialized service of its bankers, both in investment banking and transactional banking.