Mexico market analysis
Nearshoring and negotiations: Trends in Mexico's automotive supply chains
With US tariffs forcing firms to creatively reimagine their supply chains to build resilience, Mexico finds itself with unprecedented opportunities to strengthen its standing on the global automotive stage, but uncertainty around a key free trade agreement in North America means uncertainty persists.
Mexico’s automotive sector is an integral part of North America’s manufacturing industry, with factories from Monterrey to Puebla producing a vast array of vital parts. As global carmakers reconsider their supply in the wake of the Covid-19 pandemic and geopolitical tensions, not least tariffs in the US, Mexico has emerged as a favoured hub for nearshoring – close enough to the US to keep costs low and mitigate risk, yet separate enough to take advantage of competitive labour and trade incentives.
The industry’s success, however, rests on shifting ground, with the impending review of the US-Mexico-Canada Agreement (USMCA) set to reopen debates over rules of origin and labour standards. Meanwhile, cross-border freight corridors are feeling the weight of booming trade, forcing firms to rethink logistics and consolidation strategies. Alongside this, a new initiative backed by Mexico’s government is aiming to develop the country’s first domestic EV manufacturer, supporting Mexico’s ambition to cement itself as a fully-fledged automotive innovator in an increasingly electric and geopolitically-charged market.
Anticipation
of the USMCA review
Something with the potential to significantly impact automotive supply chains in Mexico from next year is the upcoming review of the USMCA, which entered into force on July, 1, 2020. It replaced the North American Free Trade Agreement (NAFTA), which had been in place since 1994.
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As Lailah Aridi Efaz, director of global public policy at Toyota Motor Manufacturers North America, highlights, one of the novel features of the USMCA is its inclusion of a provision that allows it to adapt and change, rather than existing “in perpetuity without any thought of what the impacts and benefits actually are.”
And with the agreement up for review in July 2026, Efaz outlines three potential outcomes of negotiations. The three parties could agree to renew the USMCA for another 16 years, they could agree to revise it – which Efaz says would involve annual meetings for up to years to understand how to fix it – or they could decide to terminate it, but this final option would be a little more complicated than it might sound. “Even if they take that third path, it doesn't end on that day – it still would have to exist for another 10 years and they have the opportunity to fix it,” Efaz explains.
Offering insight into what might be discussed during next year’s USMCA review, Efaz says: “I think we should fully expect the spotlight to be on autos. I think there will be a look at the current regional value content requirements as well as the labour wage content requirements.”
According to Efaz, we can also expect to see attention being given to issues outside of North America, such as concern about transshipment or circumvention into the supply chains. “I think we should also look at using unique approach approaches to aligning the North American market on not just trade rules, but also investment screening, export controls and other things like the or Uyghur Forced Labor Prevention Act (UFLPA) – non-tariff related issues like forced labour – to squeeze any of that out of supply chains in our region.
Speaking on next year’s USMCA review, Rogelio Garza, head of the Mexican Association of the Automotive Industry (AMIA), said that the outlook is complex, but added that Mexico was prepared for it. To navigate this complexity, Garza is advocating for increased coordination amongst industry groups across North America.
Meanwhile, Francisco Gonzalez executive president of the National Auto Parts Industry Association (INA) in Mexico, claims faster development of local tier one and tier two suppliers is needed to strengthen automotive supply chains. This lack of suppliers – particularly tier two suppliers – was identified by Manuel Montoya, director of the Automotive Cluster of Nuevo León (CLAUT) last year. "I am referring to plastic injection, machining, stamping, but especially aluminium industrial processes, which are increasingly used in automobiles and will grow further with the rise of electric vehicles,” Montoya said. “There is a lack of aluminium suppliers in processes such as extrusion, casting, and forging, as there are almost no companies of this nature in Mexico.”
He gave examples of instances where buyers seeking aluminium-related products far outnumbered the supply base, such as 11 buyers seeking aluminium forgings but just four suppliers being identified – all of which were already overloaded.
Montoya explained that, in his view, the base of the supply pyramid can be expanded in two ways, either by bringing in external companies or developing local suppliers. “Imagine the business opportunities for the supply chain with 16 million vehicles demanding 12.5% regional content; this represents a significant opportunity," Montoya concluded.
Nearshoring is not a new trend
Despite tariff uncertainty undoubtedly having an impact on Mexico’s automotive supply chains, the trend of nearshoring in Mexico actually pre-dates Trump’s second term in the Oval Office. “Nearshoring is a historic opportunity for Mexico,” Lizette Gracida, senior director of external affairs and trade compliance at Toyota’s Mexico division, said at the 2024 Automotive Logistics Supply Chain Mexico conference.
Mexico is currently ranked 13th on the Savills Nearshoring Index, which assesses countries’ attractiveness for relocating supply chain based on four key factors: resilience; economic cost; business environment; and ESG performance.
Savills associates explained that Mexico’s performance on the 2024 Nearshoring Index can partly be attributed to an increase in its cost differential to other markets and increased demand from manufacturers such as Volvo and BYD.
Gracida made reference to the Nearshoring Index in 2024, noting that several key obstacles – limited logistics infrastructure, clean energy availability and complex trade facilitation processes – will need to be overcome to improve Mexico’s ranking.
Mexico is currently an attractive proposition for OEMs – both for the domestic market and access to the South American market. For example, Renault recently opened a new logistics centre for automotive parts in the country to support its supply chain operations in South America and domestic parts and aftersales operations, with Jesús Gallo, CEO of Renault México, highlighting Mexico’s “spectacular supplier base” as a benefit to the region. In 2024, Mexico produced almost 4 million automobiles, marking a 5.56% year-on-year increase. Total production is forecast to grow again by 2.7% in 2025.
In addition to this, Hyundai Mobis recently expanded its operations in Mexico, opening a new EV battery plant in Pesquería, Nuevo León – the first to be established in the state. The new facility represents an investment of $28.6 million and is expected to generate more than 200 new jobs.
Cross-border
freight consolidation
Cross-border shipments, being more complex than domestic logistics, can often be pain points for automotive supply chains with operations in both the US and Mexico. One strategy that is becoming more popular for improving the efficiency of cross-border shipments is freight consolidation.
For example, logistics service provider CH Robinson recently reconfigured its operations in Mexico, consolidating its freight in the country and combining this with cross-border transport, customs brokerage and bonded warehousing to overcome inherent inefficiencies in cross-border supply chains.
This service was designed to overcome inherent inefficiencies in cross-border shipping, where trucks crossing from Mexico into the US are often underutilised. As Mexican law requires all freight on a truck to be cleared by the same customs broker, consolidating less-than-truckload freight at a secure facility in Mexico and before it is moved across the border can allow for earlier inbound visibility and costs savings through optimised routes and lower tariffs. According to CH Robinson, the new service can save cross-border shippers up to 40% in costs and gives them visibility to their freight up to 48 hours earlier.
“Say you’re a company that assembles vehicle seats in the US, and you’re importing foam, fabric, a wiring harness, a motor and switches from five different suppliers in Mexico. Those are coming to the border on five different trucks, five different transfer carriers are taking the loads across, and only then your freight might be consolidated for delivery to your warehouses or plants,” explains Jay Cornmesser, vice president for Mexico cross-border services at CH Robinson. “You’re unnecessarily paying for too many trucks and unnecessarily paying for unused space on each truck.”
Ben Bidwell, senior director for customs at CH Robinson added that the consolidation can provide some relief from US tariffs. “We can move freight in bond, meaning it can enter the US through a bonded warehouse to defer US tariffs for better cash flow or even eliminate tariffs in the freight is passing through to Canada,” Bidwell said. “Because auto parts and components are one of the top items flowing across the Mexico border, this is particularly attractive for automotive supply chains subject to the 50% tariffs on items containing aluminium or steel.”
CH Robinson is not the only company to take advantage of this strategy. Power management company Eaton partnered with Uber Freight to consolidate different methodologies for finance, IT and standard operating procedures at each of its eight plants in Mexico. Instead of switching between eight individual customs brokers, Uber Freight explains that its TMS “integrated all operations, KPIs, management and communications in one place to promptly identify and execute opportunities for improvement”.
As a result, Eaton was able to create a standard set of processes and, using Uber Freight’s network and infrastructure, “eliminate the complexities associated with the customs process and stay in compliance with Mexican and US regulations”.
Foreign Trade Zones (FTZs) are also playing an important role in many firms’ strategies for minimising the impact of US tariffs. FTZs are special areas in the US that allow companies to reduce import duties and other costs. According to research company Trade Treasury Payments, a record number of importers are turning to FTZs and bonded warehouses as a means of managing rising costs and operational uncertainty in the wake of the tariffs. “Industry data confirms a surge in FTZ participation, with the National Association of Foreign Trade Zones (NAFTZ) reporting all-time high membership figures and a steep rise in inquiries from businesses across sectors,” Trade Treasury Payments says.
It also claims that logistics service providers are seeing “a corresponding spike in demand”, with some firms using bonded storage on a short-term basis – holding goods temporarily while monitoring how trade negotiations evolve – and others fast-tracking FTZ applications to gain longer-term optionality.
This is something that has been seen near the US-Mexico border, where FTZs can act as staging for exports or re-exports into the US. In January this year, operator of intermodal, finished vehicle and depot service terminals ConGlobal announced the opening of a new storage facility in FTZ 94, located in Laredo, Texas – which ConGlobal describes as “a vital gateway for cross-border trade”. Highlighting the benefits of the facility, ConGlobal describes it as “an ideal staging area for goods and equipment, allowing for efficient coordination and seamless transitions between transportation modes,” noting that it is strategically positioned near the I-35 and Hachar Parkway expansion serving as a hub for cross-border traffic into and out of Mexico.
Meanwhile Distrubi, a third-party logistics company specialising in cross-border logistics, explicitly states that its FTZ warehouse in Laredo can be leveraged to avoid tariffs while goods are stored or assembled and deliver products to Monterrey, Nuevo León within three hours.
A rise in demand for FTZ warehousing could impact automotive supply chain operations near the US-Mexico border, potentially leading to increased demand for services such as container handling, cross-border drayage and yard management for the storage and movement of automotive parts inside these zones.
Mexico’s first homegrown EV OEM
The Mexican government has bold ambitions when it comes to expanding the country’s position as an automotive hub. At the beginning of the year Mexico’s president, Claudia Sheinbaum, announced “Olinia”, Mexico's first manufacturer of mini EVs – set to transform automotive supply chains in Mexico. By investing in this project, the Mexican government intends to create a “small, affordable electric car” that is designed and assembled entirely in Mexico. “Olinia must be a small, safe and electric vehicle – one that can be charged from any outlet and built primarily with Mexican components,” Sheinbaum says. This project could have a significant impact on Mexico’s automotive supply chain and logistics landscape, as it is expected to create local jobs and make use of domestic resources. Part of the plan is the creation of regional assembly plants. This, the Mexican government has said, is to help reduce transportation and logistics costs, which is key to maintaining an affordable price point for consumers. Localisation can be an appealing strategy, both for cost reduction and for increasing resilience, with local supply chains less vulnerable to tariff-related disruptions to cross-border shipping. The Olinia project forms part of the Mexican government’s “Plan México”, which establishes the country’s national development strategy for the next five years. The wider goal of Olinia is to increase vehicle production for national consumption by 10% and increase national content by 15% through “the substitution of vehicle imports, by substituting imports of electronic components for vehicles, expanding aluminium auto parts production, and developing battery cell production for electric vehicles”. Coordinated by the Secretariat of Science, Humanities, Technology and Innovation (Secihti) and developed jointly by the Instituto Politécnico Nacional (IPN) and the Tecnológico Nacional de México (TecNM), the country’s federal government has allocated an initial investment of 25 million pesos ($1.4 million) to the project. It is hoped that Olinia will begin producing three vehicle models by 2030: a personal mobility vehicle; a neighbourhood mobility vehicle; and a last-mile delivery vehicle, ranging in price from 90,000 to 150,000 pesos ($4,913-$8,190). All three vehicle models will be all-electric, which will support Mexico’s energy transition by reducing fossil fuel dependence and cutting urban emissions, while the compact nature of the vehicles is expected to improve urban mobility in Mexico’s cities. “Olinia is more than a car – it represents Mexico’s capacity to innovate for the wellbeing of its people and for the planet,” Sheinbaum added. Olinia vehicles are due to be unveiled at the opening match of the 2026 World Cup, taking place in Mexico City, with the tournament spanning Mexico, Canada and the United States. The Mexican government had planned to showcase the designs of two vehicles – one domestic, one commercial – in September, but at time of writing no such designs have yet been presented.
