Mexico Automotive Summit 2021 Echo

IMPACT REPORT

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The automotive sector is adapting to one challenge after another. Companies in Mexico first secured their operations thus preventing any risks to their employees. Then, after a historic hiccup in Mexican production, operations slowly resumed only to face a shortage of critical supplies, from semiconductors to plastic injection parts. Now, companies in North America are facing logistics constraints when bringing components from Asia as container prices have sk yrocketed.

The immediate challenges, however, do not faze OEMs from their needed transformation from car manufacturers to mobility providers. Connected, autonomous, shared and electric vehicles are strongly influencing manufacturing operations, driving material technology innovations and strengthening Industry 4.0 capabilities. Get to know the shortcomings and opportunities in the sector directly from those shaping its future at Mexico Automotive Su mmit Echo.

111 companies

196 conference participants

55 speakers

7 sponsors

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Recruitment

Investment

• 3C Metrology SA de CV

• ABB

• ALD Automotive

• ALT Technologies

• AMDA

• American Industries

• AMN International

• Arbomex

• ArIDrA

• Auto Cluster

• Autocluster del Estado de Chihuahua

• Automated Logistics System, LLC

• Automotive Cluster of San Luis potosí

• AWS

• BCW

• BHTC México S.A. de C.V.

• Bosch Mexico

• CANACINTrA pUEBLA

• Circutor

• Clauteodmex

• CLAUZ

• Cluster Automotriz de Nuevo León AC

• Clúster Automotriz Zona Centro

• Clusther Automotiz Ags

• COfOCE

• Creative foam de México, S. de r.L. de C.V.

• Cuadrante

• Daimler

• DHLSC

• Distribuidores del Istmo

• Dupont Latin America

• E-DrIVE

• Enel Energia

• Evonik Industries de Mexico SA de CV

• EWS LTD MX

• faurecia

• financiera Bepensa

• flowSmart

• ford Motor Company

• forefront power

• frost & Sullivan

• fUMEC

• GED

• General Motors

• GML

• Gobierno de Ontario, Embajada de Canadá en México

• GOBIErNO DEL ESTADO DE pUEBLA

• Helmut fischer

• Hinduja Tech

• Hino Motors Sales Mexico

• HK Strategies

• Honda de Mexico

• Iberdrola México

• Industria Nacional de Autopartes AC

• Infor

• Informe Confidencial

• Jaguar Land rover

• KASO & ASOCIADOS SA DE CV

• Kia Mexico

• Kikoya

• KpMG

• Lavartex

• Leaseplan Mexico

• MAN Truck & Bus México

• MAZDA MEXICO

• Mercado Libre México

• Mexicircutor SA de CV

• Mexico Business

• MexicoView

• Michelin

• Minsait

• Mitsubishi Motors

• MOLD SErVICE

• MUBEA

• Nemak

• Netcon

• Neuron Business Group

• Newlink México

• Nissan Mexicana

• pELT

• ppG

• Qualcomm

• rassini

• red Nacional de Clusters de la Industria Automotriz, A.C.

• rEr Energy Group

• robert Bosch Mexico

• rockwell Automation

• SAMES KrEMLIN

• SAp

• Scania

• Secretaría de Desarrollo Económico de Tamaulipas

• SKf Mexico

• Sonavox Mexico

• Spencer Stuart

• State Government of Baja California

• Stellantis

• TASSM

• Tecnológico de Monterrey

• TIBA MEXICO

• Top Management

• Toyota

• Traffilog

• UNADM

• Universal robots

• Vehículo Emblema

• Vera & Asociados

• Volvo

• Von Wobeser y Sierra

• Wallenius Wilhelmsen Ocean

• Warren Automotive de Mexico

• yanfeng México

09:00 MEXICO’S AUTOMOTIVE INDUSTRY INVESTMENT OPPORTUNITIES OUTLOOK

Speaker: Iker Jiménez, Director General of Impulso Económico Global

09:30 THE FOUNDATIONS OF THE AUTOMOTIVE INDUSTRY OF THE FUTURE

Moderator: Alejandro Salas, Managing Editor at Mexico Business

Panelists: Manuel Montoya, president of the National Automotive Cluster Network

Osvaldo Belmont, Technical Director of AMIA

Alberto Bustamante, Director of INA

10:30 GLOBAL VEHICLE DEMAND OUTLOOK AND SUPPLY CHAIN RESILIENCY

Speaker: Guido Vildozo, Automotive Vice president LATAM of IHS Markit

12:00 MEXICO’S GREEN VEHICLES MANUFACTURING POTENTIAL

Moderator: Elisa Crespo, Executive president at Automotive Cluster of the State of Mexico

Panelists: Elias Massri, CEO of Giant Motors Latinoamérica

Nazareth Black, CEO of Zacua Mexico

Mónica Samudio, Country Managing Director of Circutor

Marcelo Ortiz, Global Business Development Director of Nemak Oswaldo Cacheux, planning Director of Hino Motors Sales México

13:15 TOWARD A MORE SUSTAINABLE TRANSPORTATION: GREEN HEAVY VEHICLES

Moderator: Miguel Elizalde, president of AN pACT

Panelists: Gilberto Ramírez, Director of Strategic planning & Business Development at Volvo Trucks & Mack Truck

Raúl Rodríguez, Business Transformation Solutions Director of Scania Mexico

Jesus Gomez, Director of Market Development and product portfolio at Daimler Trucks Mexico

15:00 TELEMATICS & THE FUTURE OF SMART FLEET MANAGEMENT

Moderator: Israel Escutia, Director General of Invarat México

Panelists: Fernando Ardura, Chief Business Officer of Traffilog

Marco Lizarde, Business Unit DHL Consultant at DHL

Kent Bjertrup, regional Director - Latin America of ALD Automotive

Mauricio Medina, CEO of TIp Mexico

16:00 TECHNOLOGY INFRASTRUCTURE FOR VEHICLE SALES

Moderator: Guillermo Rosales, Deputy General Director at AMDA

Panelists: Regina Granados, CEO of Lease plan

Raul Peñafiel, Director General of Jaguar Land rover México

Jorge Vallejo, president & CEO of Mitsubishi Motors de México

Miguel Barbeyto, president of Mazda

09:00 TURNING POINT FOR THE AUTOMOTIVE SECTOR

Speaker: Edgar Estrada, Director of Volkswagen Mexico

09:30 NEW INVESTMENTS CONTINUE TO LAND IN THE COUNTRY

Moderator: Florian Hanft, General Manager of Sonavox Mexico

Panelists: Lorena Isla, LATAM Director of frost & Sullivan

Paulina Gonzalez, Monterrey Director of American Industries

Francisco García, Director General of NETCON

10:15 REINFORCING NORTH AMERICA SUPPLY CHAIN

Moderator: Mónica Doger, president of the Automotive Cluster puelba & Tlaxcala

Panelists: Ruben Lostal, Location Manager of MUBEA

Martín Toscano, president of Evonik

Víctor Galvan, Senior Manager at K pMG

Cristobal Magallanes, Automotive Sales Director of SK f

12:00 MATERIAL TECHNOLOGY: ADAPTING TO INDUSTRY NEEDS

Moderator: Luis González, president at Automotive Cluster SLp

Panelists: Juan José Zaragoza, president LATAM of Dupont

Adriana Macouzet, Vice president Latin America and General Manager of pp G

Pierre-Louis Dubourdea, president and CEO of Central America and Mexico at Michelin

Elvia Bedolla, plant Manager at LAVArTEX

13:00 MEXICO, A LAND FOR SUPPLY CHAIN INNOVATION

Moderator: Carlos Canseco, Director of the Queretaro Logistics Cluster

Panelists: Karla Góngora, r&D Mexico Director of faurecia

Eduardo Watty, Sales Vice president Mobility Solutions of Bosch Mexico

Alejandro Rojo, Director of Tecnológico de Monterrey’s Automotive Mechatronics research Center

René Antaño, Science Director at CIDETEQ

15:00 SEMICONDUCTORS AND VEHICLE CONNECTIVITY

Moderator: Ricardo Anaya, product Manager at Qualcomm

15:30 NEW INVESTMENTS CONTINUE TO LAND IN THE COUNTRY

Moderator: Sergio Bautista, robotics Local Business Unit Manager of ABB

Panelists: José Riveró, Country Manager of Infor

Javier Vallejo, Senior Manager of Architect Solutions at AWS

Abraham Sosa, Director of Global Accounts in Latin America at Universal robots.

16:30 SUPPLIERS AND OEMS, PARTNERS IN REACHING CARBON NEUTRALITY

Moderator: Luis Vera, Managing partner at Vera & Asociados

Panelists: Pablo Rivero, Country Manager of fore front power

Ana Núñez, Digital Supply Chain Hub Lead of SAp América Latina

ELECTRIFICATION OF THE AUTOMOTIVE SECTOR IS A PRI ORITY: SRE

The automotive sector has taken center stage in the transition to clean energy as both carmakers and government institutions work to reduce its carbon footprint. However, achieving this goal does not depend on the efforts of a few but on all players in the ecosystem, said Iker Almícar Jiménez Martínez, General Director of Global Economic Impulse at the Ministry of foreign Affa irs (S r E).

S r E is focusing on six strategic sectors: mobility, aerospace, health sciences, infrastructure, information technologies and automotive. In the latter, S r E has identified transportation as one of the main sources of greenhouse gas emissions in Mexico, leading the country to “face great challenges in the face of global carbon footprint reduction requirements,” said Almícar. “We have realized that a rapid transition and a strong transformation are required. We want this sector to become a new one in the next few years.”.

“We

have realized that a rapid transition and a strong transformation are required. We want this sector to become a new one in the next few years ”

up since the former North American free Trade Agreement (NA f TA).”

To boost this sector, S r E and the Ministry of Economy have created a strategy for the automotive sector with the goal of “electrifying transport,” Almícar stressed. With the support of the US, he added, these agencies will create a plan to accelerate the transition to the widespread use of electric vehicles and the transformation of the industry. This plan includes the development of interdisciplinary working groups that will create transport electrification scenarios, assess the challenges involved and present a roadmap. “This has to be an effort of governments, academia and society,” Almícar said. “We all have to participate to be on the same page and make this transition as smooth as possible.”

The creation of strategic value chains, not only under the USMCA framework but also at a global level, brings great opportunities for Mexico and the automotive sector, said Almícar, adding that the country has the potential to become a production and distribution hub. “Today Mexico has enough strongholds to attract investment.”

Impulso Económico Global

Iker Jiménez Director General of

Mexico is currently the fourth largest automotive manufacturing country in the world, producing about 20 percent of all light vehicles in North America. It is also the largest contributor to the country’s manufacturing GD p at 25 percent, accounting for a third of total exports. “All of these achievements have been built

The electrification strategy that the industry is experiencing in the US also provides a great opportunity for Mexico to create a local value chain in auto parts production and automotive assembly.

“The automotive sector in Mexico has a wealth of experience in parts production, assembly and distribution of high-quality vehicles,” said Almícar. “We can take advantage of the experience we have acquired and apply it to the new global interests of sustai nability.”

MEXICO NEEDS ROADMAP TO REACH THE AUTO SECTOR OF THE FUTURE

The automotive sector is still recovering from the pandemic despite the looming challenge presented by shortages across

the supply chain. While the sector endures, it needs support from all industry players to properly overcome these obstacles.

The automotive sector represents only a small part of the total semiconductor market but unexpected demand has led to shortages across manufacturing industries. Only 10 percent of total semiconductor chips head to the automotive industry, being the Americas the last region in semiconductor demand, according to INA. “Semiconductors for the automotive sector are manufactured in five factories, mainly in Asia. The demand for semiconductors from other devices has risen causing a consequential lack of supplies for the automotive sector,” said Alberto Bustamante, Director of INA.

Logistics costs have also driven up a shortage of different supplies. “ p rice of containers has risen up to 100 percent per container. for instance, from Shanghai to Long Beach the regular cost ranged between US$2,000 and US$3,000; now it costs about US$8,000. This has delayed production globally,” said Bu stamante.

“Triple helix collaboration is essential to just not be a technology importer. Companies in Mexico should work together with local universities in product development. It is also important for universities to approach to companies. Guanajuato, for instance, is inaugurating an Industry 4.0 hub hand in hand with the automotive cluster, which can be effective to implement such projects at real manufacturing plants”

Manuel Montoya

President of the National Automotive Cluster Network

rely less on certain semiconductors have impacted the entire supply chain, added Montoya. Under these circumstances, recovery of production lines will not arrive until 2H22, said Oswaldo Belmont, Technical Directo r of AMIA.

While the sector is dealing with semiconductor shortages, it is also undergoing one of its deepest transformations as OEMs shift to CASE mobility. CASE mobility transformation requires a unique strategy for every stage, explained Belmont, so there is no one-size-fits-all solution. “EV production is conditioned by battery production otherwise there may be more vehicles in global markets. As for connectivity, vehicles will be connected to the infrastructure, save lives and reduce accidents but for vehicle autonomy we need a solid infrastructure. Shared mobility also drives the sector to a different paradigm in terms of vehicle ownership and new business models, in which users can access a vehicle only tem porarily.”

Manuel Montoya, p resident of the Automotive Cluster Network, said that even though there are projects to bring semiconductor manufacturing operations to North America, these may take time. “Semiconductor factories are already building new plants but it is not a simple as that; it takes between 18 and 24 months to ramp up operations,” said Montoya. OEMs production halts or shifts to models that

Another problem to advance electrification is poor battery life and high costs, said Montoya. “If the battery technology is not sufficiently advanced and has a similar cost to an ICE vehicle, EV will remain a niche market.” However, these challenges have not stopped electrification as EV sales are experiencing solid growth rates in Mexico, in some cases growing by over 100 percent, said Bustamante. But for EVs to truly penetrate the market there must be support from the government. “Companies should not be driving infrastructure on their own; they need to be sported by government policies and a proactive regulation. The sector needs charging corridors, such as the one in the Bajio, built with the support of the federal government,” said B ustamante.

There still a need for regulation cohesive to assure competitiveness, said Bustamante. “We are fifth largest auto part producer in the world with US$94 billion in play. This drives the country to build regulations

that assure its competitiveness. The automotive sector in Mexico is larger than the oil and gas and remittances sectors, even larger than tourism. Millions of families rely on the automotive sector.”

A cohesive public policy will serve as a roadmap for the sector to embark in the challenges brought by its transformation while coping with existing challenges, said Bustamante. “ from the government side we need to create coherent public policy to draft roadmaps for the sector. In terms of regulations. It should seek for a balance between cost and benefits. We need to acknowledge what other countries do in terms of certifications and homologations and define which are the most important elements of the sector to regulate.”

Collaboration is not restricted to governments and businesses; academia also plays a key role. “Triple helix collaboration is essential to just not be a technology importer. Companies in Mexico should work together with local universities in product development. It is also important for universities to approach

to companies. Guanajuato, for instance, is inaugurating an Industry 4.0 hub hand in hand with the automotive cluster, which can be effective to implement such projects at real manufacturing plants,” sai d Montoya.

The triple helix approach has helped the auto sector in Mexico succeed. “Success stories in the automotive sector are based on the triple helix, with human capital answering to the needs of the sector, while companies providing them with job opportunities with the support of local governments for new plants arriving to the state. Also, there should be more communication within the academia for a larger interaction,” sai d Belmont.

Solid collaboration has allowed the sector to develop suppliers and engineering centers in Mexico. “The two largest trends locally are the USMCA and the arrival of engineering centers. These centers are arriving to Mexico because the country has engineers. Engineering centers are bringing more added value,” said Montoya.

MEXICO’S GREEN VEHICLE MANUFACTURING POTENTIAL

Driven by the need to reduce its carbon footprint, the automotive industry is undergoing one of its most significant transformations in many years. As supply chains undergo major disruptions, vehicle technologies evolve and consumers change their preferences, the adaptability and resilience of companies in the automotive sector has become essential for all players in the ecosystem.

According to data from the National Institute of Statistics and Geography (INEGI), during 1H21, sales of nonconnectable hybrid vehicles and electric cars increased, said Elisa Crespo f errer, Executive p resident of Cluster Automotriz regional Estado de México. Nationally, the State of Mexico had the highest number of electric vehicle sales during the first half of the year with 110 transactions.

Mexico City comes in second place with 102 sales, followed by Nuevo Leon with 29 and Jalisco with 25.

Giant Motors, which seven years ago began a nationwide electrification project in the truck sector, developed the country’s first all-electric truck twinned with an internal combustion engine. “Today we have almost 2,000 zero-emission vehicles on the road,” said Elias Massri, CEO of Giant Motors. for the company, however, this has not been an easy process as it started out testing lead-acid batteries and worked its way up to the lithium batteries it use s today..

“Mexico

still lags far behind in mobility infrastructure in comparison to other countries,” the transition between increased demand for EVs and infrastructure supply will come hand in hand. Currently, most OEMs marketing such cars already include the installation of in-home charging centers”

Elias Massri

CEO

of Giant Motors Latinoamérica

this is less of an issue because the driver is clear about the route, how many kilometers they will drive and where they can charge it,” he explains. Today an electric car can achieve 500 kilometers of range. Another of these misconceptions is that the lack of infrastructure makes it almost impossible to own one of these cars and, while “Mexico still lags far behind in mobility infrastructure in comparison to other countries,” the transition between increased demand for EVs and infrastructure supply will come hand in hand. Currently, most OEMs marketing such cars already include the installation of in-home charging centers, Massri added.

Circutor, a transnational company focused on energy efficiency, currently provides about 80 percent of the current market for EV charging centers in Mexico. Today, the company is also focusing on battery innovation for cars, said Monica Samudio, Country Managing Director for Mexico and Central America of Circutor.

The price of electric vehicles is also preventing many consumers from buying one. However, Massri explains, it is necessary to consider that the long-term cost of an EV is much lower compared to that of an internal combustion engine, “starting with the fact that you never have to spend more on fuel.”

In this transition, auto parts suppliers play a key role in supporting OEMs develop new technologies. “ r esources are not unlimited for anyone and it is necessary to face these new challenges together and on a fast track,” said Marcelo Ortiz, Global Business Development Director of Nemak. Along with the knowledge that these two industry players can share, Ortiz said that blending their networking pool is also a big step towards listening more closely to the consumer and the entire supply chain to provide better solutions. “What has made you successful in the past will not necessarily make you prosper in the future,” he said.

The myths surrounding electric vehicles, however, are still present in the market. The mileage that such a car can achieve is one of them, Massri said. “With commercial vehicles,

A key step in this transition are hybrid vehicles, which have been the go-to option for consumers just entering this emerging market, said Oswaldo Cacheux, p lanning Director of Hino Motors Sales Mexico. Currently, the Japanese-based company has established itself in Mexico as the only brand with this technology for light commercial vehicles ranging from 4.5 tonnes to 7.2 tonnes gross vehicle weight, Cacheux said. To date, the brand has sold more than 1,500 units in the Mexican market, with particular success among manufacturers and wholesalers of sweets and snacks, dairy products and logistics companies.

Under these circumstances, resilience allows companies to overcome the hurdles that electrification has brought to the

market, according to Mexican electric vehicle manufacturer Zacua. Limited education regarding clean energy has not allowed the massification of EVs to accelerate. “Many people do not know how

an electric vehicle works,” said Nazareth Black, CEO of Zacua Mexico. “We always approach the consumer through education to break down any misconceptions they may have.”

IN THE SHORT TERM, SUPPLY WILL DR IVE DEMAND

The automotive industry was hit hard by the COVID-19 pandemic and its negative effects are still expected to continue affecting the sector during 2022. The recovery, expected for 2023, depends on demand behavior, supply chain resiliency and the changing needs of the market and countries’ regulations. These trends will shift the approach taken by OEMs and the entire value chain across the world, according to global analytics firm IHS Markit.

“We expect a great reset for the industry, which will be paralyzed depending on how many units can be manufactured, not on what consumers want. There are no inventories; it will be a great reset. Supply will drive demand, not the other way around,” said Guido Vildozo, Senior Manager, Americas Light Vehicle Sales forecasting at IHS Markit.

The industry’s recovery will be guided by the supply chain, which has suffered shortages as vehicle output levels cannot keep pace. The expected global light vehicle sales forecast for 2021 is of 80.5 million, said Vildozo, thanks to the positive effects of vaccination programs and an increase in demand to pre-pandemic levels in key markets, such as

China and the US. However, pandemic-related disruptions and supply chain bottlenecks will continue impacting the sector for the next 12 to 18 months.

The industry is moving forward and automotive innovations today come from electronics rather than mechanics. As automakers speed up toward CASE mobility, semiconductor chips have become essential. A single alteration in the supply chain could result in a massive impact for the entire sector. With 3Q21 close to its end, semiconductor shortage impact forecast for 2021 is over 10.5 million units globally and 2 million units for North America, according to Vildozo.

“When the Delta variant spread across South East Asia, which are Tier 2, Tier 3 and semiconductor chips suppliers, the problem got worse because they just entered the stage of lockdowns and the economy shutdown and reopening cycle usually takes between 6 and 8 months. Considering that the shutdowns began in July, the situation will be normalized by the end of 1Q22, limiting 2022’s production,” said Vildozo.

regularizing the value chain is a complex challenge considering the pandemic different progress globally, macroeconomic factors and governments’ decisions. IHS Markit’s global light vehicle sales outlook for 2022 has an 82.62-million-unit base, with 80.62 million units with a pessimistic view and 86.46 as an optimistic forecast. for North America, the outlook ranges from 14.9 to 16 million light vehicle sales for 2022. regularization of the value chain will not arrive until 2H22, according to the analysis.

A respite might arrive earlier with more semiconductor plants. Technology giant Bosch’s new €1 billion (US$1.2 billion) semiconductor chip plant began operating in last August. As vehicles get smarter, more semiconductors are needed. “The fact that we actually started to build this plant a couple of years ago shows that we expected the demand to go up dramatically,” said to CNBC Herald Kroeger, Member of the Bosch Management Board.

Electrification to Change the Entire Industry

Electrification is the key trend driving the automotive industry. While OEMs cannot approach it in the same way in developed and emerging markets, there is an aggressive tendency toward EVs. Between 2018 and 2028, there will be 241 light vehicle launches, according to IHS Markit.

Manufacturing of EVs will be completely different from traditional combustion engine vehicles and processes will also differ between BEVs, HEVs and pHEVs. “By 2030 we will have a very different industry, with less platforms and complexity. It will be highly electrified, but with a reduced range of products. In North America, from 2022 the

tendency of combustion engine will now be negative,” said Vildozo.

raw materials and production cycles will be the main challenges for the coming years. Governments’ decisions and regulations will also set the tone. As years go by, stringency increases. The US president Joe Biden set the goal of having 50 percent of EVs by 2030. regulations could constantly change the approach of the industry, warned Vildozo. However, OEMs make decisions according to their strongest markets. While some automakers have a balanced global coverage, others mainly rely on 2 or 3 key markets, said Vildozo. “We have seen diverse announcements by automakers. Volkswagen targets full electrification by 2035 due to its sales footprints in China and the EU, which have strong regulations. Toyota’s electrification process is slower due to its balanced market across the world. However, it announced 15 new EVs and millions in investment,” said Vildozo.

for electrification to happen, customers, OEMs and governments are the three key players. Emerging markets, such as Mexico, will move toward a different direction, according to industry leaders in the country, since there are other priorities to attend before electrification. Combustion engine vehicles and HEVs are expected to continue having an important presence in the Mexican market.

Electrification “is progressing seriously,” said Vildozo. However, considering the industry’s low profit margins and the high costs of EVs technology, the production volume “will be relatively low initially and OEMs will continue relying on combustion engine vehicles to generate profits. Suppliers and consumers will pay the high costs of EVs,” said Vildozo.

HEAVY VEHICLES IN THE ROAD TO SUSTAINABILITY

Transportation is one of the largest sources of greenhouse gas emissions in Mexico, which also has an old vehicle park with an average age of 19 years; some of these vehicles are over 40 years old. The path toward greener vehicles is already set but getting there relies on a multistakeholder approach, ag ree OEMs.

“With many of our products being used for 10 years on average, if we want to reach our goals by 2050, by 2040 we should manufacture only fossil-free vehicles”

Gilberto Ramírez Director of Strategic Planning & Business Development at Volvo Trucks & Mack Truck

has made important advances on BEVs and fCEVs with powertrain solutions,” said Jesús Gómez, Market Development and product portfolio of Daimler Trucks Mexico. Daimler is Mexico’s largest heavy vehicle producer, exporter and seller. Its goal is to offer a vehicle fleet totally free of carbon emissions by 2039. “In the meantime, we continue to reduce our energy and water consumption to reduce our carbon footprint in all our busine ss units.”

Mexican authorities are changing regulations to address greenhouse gas emissions and provide cleaner transportation. NOM-044SEMAr NAT, for example, regulates vehicle efficiency and greener fuel consumption using technologies such as E pA 10 and EU r O VI. However, the poor availability of ultra-low-sulfur diesel makes the implementation of the NOM a challenge.

“NOM-044 regulates diesel emissions and the manufacturing of this technology. Heavy vehicle manufacturers must comply with this regulation but to do so we need to have ultralow-sulfur diesel available to use EpA 10 and EUrO VI technologies. We are working with SEMArNAT to acquire more information to apply this regulation and create new ones. This norm will reduce emissions in new vehicles but it cannot reduce emissions in the old vehicles that are already on the streets,” said Miguel Elizalde, president of AN pACT, the national association of heavy vehicle manufacturers.

Heavy vehicle manufacturers have clear strategies to comply with increasingly stringent environmental regulations and reduce their carbon footprint. “The need for sustainable mobility solutions will remain as long as there are cities. Daimler

Scania, a leading provider of commercial vehicle technologies, is also making sustainable transportation a priority. “At Scania we are aware that global warming remains an issue and act proactively in finding a solution. We have different technologies available for different markets that include vehicles powered by hydrogen, ethanol, biogas, L p gas, natural gas and electricity, among others. We are aware we are living a transition period, in which technologies will last longer. Scania adapts to customers’ need,” said r aúl r odríguez , Business Transformation Solutions Director at Scania México. Scania plans that by 2050 all its units will be powered by alternative sources. By 2025, 50 percent of its production processes will use renewable energy and as part of the UN Global p act Scania will continue to work to promote susta inability.

for Mack Trucks and Volvo Buses, two of the top 10 brands in the Mexican commercial vehicle market, sustainable transportation is also essential. Volvo plans to comply with the goals set in the p aris Agreement by 2050. “This is the greatest challenge of our generation but sustainable transportation solutions are essential for a society to thrive,” says Gilberto ramírez, Director of Strategic planning & Business Development at Volvo Group Mexico. “With many of our products being used for 10 years on average, if we want to reach our goals by 2050, by 2040 we should manufacture only fossil-free vehicles,” says ramírez. By 2030, 30 percent of Volvo Group’s production will be fossil-free vehicles.

Sustainability is not only achieved by a vehicle portfolio; it also requires proficient aftersales services, training and technology. “Sustainability in aftersales has also been important for us. We offer remanufactured components that maximize the units’ performance in operations. The remanufactured components are considered ecological in terms of recovery and component assembly,” said Gómez. Scania is focusing on training vehicle operators to reach greater efficiency. “Training drivers can improve fuel efficiency by 5 percent. We are launching flexible maintenance programs and changing our approach based on our clients’ operations. f inally, we are digitalizing our fleet by connecting our vehicles, which allows us to detect the ideal time for maintenance,” said rodríguez.

In transition to more extensive green vehicle technologies, fuel efficiency for both buses and trucks is key. “Efficiency is essential. We are transitioning to more sustainable vehicles but current models should be more efficient too,” said ramírez. Efficiency will lead to greener technologies. “ r educing fuel consumption is highly beneficial for transportation. Acquiring technologies for fuel efficiency will generate greater profits. Infrastructure is also essential for vehicle operations. Ultra-low sulfur diesel will promote greener technologies,” said Gómez.

To reach a sustainable transportation, multistakeholder partnerships are essential, said Scania’s rodriguez: “We need to work from four perspectives: industry chambers, governments, OEMs and clients. This should be an ongoing work ,” he said

TELEMATICS ARE CRUCIAL FOR SMART FLEET MANAGEMENT

Telematics is no longer a luxury in fleet management but a key resource for companies to smartly manage their assets with positive cost-benefit solutions to maximize profits and reduce risks effectively. While implementing telematics in Mexico would be a win-win proposition for all players involved, there are diverse challenges in the way, agreed industry experts.

“Telematics is about connected cars, which will collect data to monitor everything related to the vehicle from its location to the drivers’ behavior. They even give the possibility to monitor the condition of the vehicle. We can collect all this data and offer it so customers can take safe, well-informed decisions,” said Kent Bjertrup, CEO-Mexico of ALD Automotive.

Telematics systems are installed in vehicles and send data to track the location and performance of the vehicle and the behavior of the driver. Information can be sent digitally to the company’s servers or through mobile applications. These systems are more complex than a G p S, which only provides a limited set of data such as the real-time position of vehicles.

“Telematics is a reality. The technology is already here; it is just about implementing it correctly. It is profitable to use it; the real cost would be not to do it. If you are going to use telematics, you need to have a complete implementation program rather than only buying the systems. A G p S is no longer enough to know everything about your fleet,” said fernando Ardura, Chief Business Officer of Traffilog.

“Telematics is a reality. The technology is already here; it is just about implementing it correctly. It is profitable to use it; the real cost would be not to do it. If you are going to use telematics, you need to have a complete implementation program rather than only buying the systems. A GPS is no longer enough to know everything about your fleet”

Fernando Ardura Chief Business Officer of Traffilog

Companies need to know that their light or heavy vehicle fleets are safe and profitable, according to Ardura. Telematics provides this knowledge. With the precise data it collects, fleet management companies can maximize fuel usage, one of their most important expenses. Knowing the behavior of drivers allows companies to improve their habits and become more efficient. “A correct use of advanced telematics allows you to do preventive maintenance rather than corrective maintenance to vehicles. Smart maintenance often means a longer useful life of the units,” said Ardura.

The auto transport business contributed with 3.4 percent of Mexico’s GD p in 2019,

attending the demands of 111 sectors of the Mexican economy and mobilizing over 550 million tons of merchandise, according to the National Chamber of Cargo Transport (CANACAr).

“Telematics is already a reality in most of trucks in Mexico. But in countries such as the US it is no longer an alternative, but an obligation. In cargo transportation, telematics help prevent accidents. It detects system failures, routes, traffic and drivers’ behavior in real time. Telematics became crucial to offer a better service to customers while reducing costs and becoming more efficient. It should not be seen as an expense, but as an investment,” said Mauricio Medina, CEO of TIp México.

Telematics do not only help when vehicles are on the road but also while the fleet is parked in the company or in shipping terminals, where vehicles could also suffer damages, said rafael Lajud, General Director of Invarat. The integration of the whole services offered by telematics is key for the companies to make better decisions, added Lajud.

Digitalization is drastically changing the logistics industry. f leet management software helps companies managing large databases of information, with records such as vehicles purchased or leased, maintenance schedules, service histories, operating expenses and financial data. These systems reduce administrative processes and can set alerts and se nd emails.

The opportunities that technology offers come with challenges for companies and telematics is not the exception. “Mexico presents a lot of challenges, with a very complex road network, security issues and many suppliers. The key to achieve perfect shipping is standardization, to lower costs and achieve consolidation, with a clear legal framework to get a real win-win deal for every player involved. Standardization will boost investment,” said Marco Lizarde, Business Unit DHL Consultant. The four main pillars for a

correct integration are data analytics, data master, software and good transportations practices, said Lizarde. “It is all about investment. you need to know where data is going to be stored. Software systems are key and they have to intercommunicate with other systems. We need to integrate our systems.”

Several business owners, carriers and fleet management leaders often have a shortterm vision regarding telematics and the implementation of complex technology systems. “We have to be more constructive when explaining the benefits of these systems. We should not offer our products as small, separated services but as a complete and integral solution for fleet management companies that will help them reduce costs and maximize profits,” said Lajud.

A correct use of telematics also needs to set clear goals and meet them. “Data is extremely complicated, one needs to understand it, organize it and then work with it, linking it to the objectives already defined. We can program data

and make it look beautiful but it is all about implementation, investing time and changing the behavior of drivers,” said Bjiertrup.

Telematics is becoming massive across the world in the insurance sector. Insurance policies costs need a correct balance; “if they are too expensive, clients will go to another company and if they are too cheap, accident rates will skyrocket and it will no longer be a profitable business,” said Ardura. This technology applied to the insurance business analyses the habits of the client, combining a broad range of information from the user’s age to their driving habits, allowing both the company and client to reach f air rates.

While investing in telematics systems could be costly for companies, not doing it could be worse. “ you have to measure to improve,” said Medina. Once achieving standardization of the systems and enough investments, the entire industry could be benefited from the information that telematics provides.

TECHNOLOGY INFRASTRUCTURE: ESSENTIAL FOR VEH ICLE SALES

As consumer preferences evolved in response to the pandemic, the automotive industry had to adapt its processes to the new way of doing business. In this new dynamic, technology has stepped in to assist and improve the sales process for OEMs. However, the challenges for the entire ecosystem to fully embrace the digital sphere are still abundant.

Technology has positioned itself as a partner of the automotive industry, helping brands reach their consumers in a different and sometimes more immediate way, said Miguel Barbeyto, president of Mazda Mexico. “In the automotive industry for some time now we have seen the evolution of technology in leaps and bounds. However, the transformation that consumer preferences are going through has set great challenges for the entire ecosystem.” At Mazda, Barbeyto added, it has been key not to neglect the detail and

care that the human factor has brought to the carmaker. “AI has delivered a lot to the industry and it is impressive but companies have to find a balance between the digital and the physical experience.”

One of the issues challenging the industry is budget. To overcome this challenge, said Jorge Vallejo, president and CEO at Mitsubishi Motors de Mexico, many misconceptions have to be overcome, ranging from dealers to the sales force. “While there are teams that are exceeding their goals by using all these tools in their processes, there are others that are not going to be able to change their mindset and use these tools to their favor,” he explained, “It all starts with seeing technology as an ally and not as a risk.”

Data provided by tools such as IA cannot remain only in the hands of a few, but must be shared with distributors and

producers in order to “unify efforts,” said Vallejo. According to Google’s Community Mobility r eport, search volume for the best deals on cars and trucks grew 70 percent globally in March 2020 compared to the same period last year. “This means that people are increasingly turning to any digital tool to compare car models an d prices.”

The luxury automotive sector also had to take the leap into the digital world, driven by the fact that in recent months the concept of luxury has been redefined in the minds of consumers, said raúl peñafiel, Managing Director of Jaguar Land r over.

“We now have customer profiles that buy a Land r over but do not show their preferences in the way they dress,” he said. “Customers have a broader definition of what is a luxury to them.” faced with this scenario, Jaguar Land rover has relied on technology to balance the “dichotomy between being increasingly efficient and

attractive while simultaneously improving the customer exp erience.”

The customer experience, however, does not end when the check is signed and that is where digital tools play a key role in customer retention and satisfaction, said regina Granados, CEO of Leaseplan Mexico, a leasing company operating in more than 30 countries and with more than 13 years of experience in Mexico. “Selling is much easier if your customers are satisfied and if it is a word-of-mouth recommendation.”

Customer onboarding through technology has become a central part of automotive companies’ strategy in recent months. But entering as a technology provider is not easy in this industry, said Joaquín r ivera, CEO and Co- f ounder of Kikoya, a technology provider that specializes in credit origination processes. “We perceive a need to own and control end-to-end processes,” sa id rivera.

THE NEW AUTO SECTOR NEEDS TECHNOLOGY

Technology and digitalization had steadily been changing the automotive industry for the past few years. However, the pandemic accelerated these processes, pushing the sector to its biggest transformation in the century, according to Edgar

Estrada, General Director of Volkswagen Bra nd Mexico.

“We had been working with innovative projects in Mexico years before COVID-19, but when the pandemic hit everything

was pushed forward. f or instance, in 2019 we started working with a mobile application so our customers could watch their car service on real time and receive online quotations and budgets. The goal was to deliver the app by 2024 but the pandemic changed everything and the pilot version was launched two weeks ago,” sai d Estrada.

Volkswagen takes innovation seriously and recently announced the implementation of AI and robotics in its North America plants, including the two located in Mexico. This will increase their productivity by 30 percent. The German automaker will also invest US$1 billion during the coming years in its three plants: Silao in Guanajuato, Chattanooga in Tennessee and p uebla. Volkswagen’s goal is to implement technology such as cloud software, intelligent robots and AI, which require exhaustive training and capacitation. With the unified software launch, the automaker will be able to optimize collaboration between its plants, upgrade the work environment for its employees and suppliers and improve the overall manufacturin g process.

Despite the pandemic, Mexico is still considered an attractive market for foreign investment. The Mexican economy is in the Top 20 worldwide, according

to the World Bank. Mexico holds great potential for the automotive industry thanks to its young, 28-year-old average population, and the possibilities to access to bigger percentages of the population. The big opportunities will come once the inequality that prevails in the country is addressed. Only 5 percent of the 129-million population is able buy a new car, according to Estrada, but there are between 1 million and 1.5 million units available for sale in the Mexic an market.

During 2020, the Mexican industry went through its worst period in modern history. In April, less than 35,000 light vehicles were sold. One year later, sales bounced back to over 83,500 units, a 139 percent increase, according to INEGI.

In addition to the impact COVID-19 caused in sales and exports, the pandemic boosted shortages in supplies, mainly semiconductor chips, which have become essential as automakers move toward electric vehicles (EVs). The semiconductor shortage disrupted supply chain across the world and by the end of 2021, they impacted the production of over 10.5 million units globally and 2 million units in North America, according to IHS Markit.

“Semiconductors shortages have forced us to adjust our sales levels across the world, including Mexico. These are challenging

times, no one knows when the supply chain will return to normal. It has become a bottleneck. However, we took advantage of those times when production stopped to strengthen our processes,” said Estrada.

Electrification is arriving everywhere, according to Estrada, who explained that Volkswagen has already an important presence with EVs in countries where infrastructure is ready for this technology, such as the EU, the US and Canada. Mobility is eventually going to become electric in Mexico, but combustion engines and HEVs will continue to dominate the Mexican market, according to industr y experts.

“Volkswagen has the ID family of EVs across the world. Our future vision includes bringing them to Mexico, which is why we continuously work with other brands and the public and private sectors to generate synergies and make electrification a reality for Mexico in the near future,” said Estrada.

Interconnectivity and dynamism are key to the light vehicle market, especially as SUVs take the spotlight in North America.

Technology continues to drive drastic changes in the automotive industry. Volkswagen is embracing digitalization and opened the first City Store of North America in Mexico City and one of its first five in the world, according to Estrada. “This is the new way to interact with customers. During the past 100 years, clients visited traditional dealers. City Store is a completely different concept, with a new customer journey where clients will see the vehicles through augmented reality, interact and receive online quotations and assistance.”

While the industry continues moving toward electrification, technology also continues changing the way production, sales and exports work. It will also continue improving the entire customer experience, from driving to car service and second-hand market.

UNDERSTANDING LOCAL SCENARIOS: KEY TO RAMP UP OPERATIONS

With numerous trade agreements, an ideal location and a young, highlyqualified workforce, Mexico is an attractive destination for the automotive industry. But producing in the country is not necessarily easy and companies aiming to land manufacturing operations in Mexico

should work with local stakeholders to seize regional benefits, said industr y experts.

“Mexico is the place to be if you work in the automotive business,” said f lorian Hanft, CEO México of SONAVOX, a Chinese Tier 1 supplier that landed manufacturing

operations in the country less than five years ago. Sonavox’s venture in Tlaxcala, one of Mexico’s smallest states, was considered ‘successful’ thanks to the company’s close collaboration with the state government and the local automotive cluster. “When Sonovox chose to come to Mexico we explored different locations and decided that Tlaxcala was where we wanted to be. Tlaxcala is the smallest state of Mexico and we have been really successful based on three pillars. first, the government made an incredible effort and we have kept in close contact with them. Second, the state has made investments in dual education programs that support the industry. f inally, the automotive cluster helped us to address to the cultural differences we faced as a Chines company. Thanks to these three pillars, we managed to successfully ramp up operations,” said Hanft. After successfully ramping up its manufacturing operations of sound components for ford, Volkswagen Mexico, Volkswagen North America and Audi projects, Sonavox identified that a comprehensive understanding of the region was key. “We need to have someone that knows the country. you cannot arrive assuming everything will work as in your home country,” sai d Hanft.

“We have seen that Mexico has shifted from a Maquila country, which it was when NAFTA entered into force. Now, Mexico is a country that adds value. Local plants are not only recognized in their municipality or state; Mexican plants are acknowledged by global headquarters thanks to their productivity levels”

Lorena Isla LATAM Director of Frost & Sullivan

frost & Sullivan. “It is important to have local suppliers really close. In Mexico there are large Tier 1 suppliers facing challenges at their own supply chains, particularly because of the lack of certain components. It is important to work together with local stakeholders to develop a sustainable ecosystem. Companies should also think about sustai nability,”

While companies such as Sonavox have come landed operations in Mexico on their own, others recommend the use of a Shelter service provider. The reason is that shelters “provide certainty” in bringing operations into the country. “ you need to have the knowhow to operate in Mexico and companies need a partner to support them in this regard,” said paulina Gónzalez, r egional Director of American Industries. International companies also need to identify the ideal site to land their operations by closely analyzing the strengths and weaknesses of each region, which will allow them to estimate how much they’ll truly need to invest to get their operations up to speed. “Companies need to create cost of business model to determine how much are they going to spend in the country. This model should take into account all the fine print. Companies need to take into account the final destination of their products, whether they should produce only for the local market, for exports to the US or other countries or both,” said González.

Companies that want to stablish in Mexico must understand the local ecosystem of each region in the country and the manufacturing ecosystem those regions support, explained Lorena Isla, Mobility Director Latin America at consulting firm

One of Mexico’s key strengths is its labor force, which allows companies to increase the added value they offer. “We have seen that Mexico has shifted from a Maquila country, which it was when NAf TA entered into force. Now, Mexico is a country that adds value. Local plants are not only recognized in their municipality or state; Mexican plants are acknowledged by global headquarters thanks to their productivity levels,” said Lorena Isla, LATAM Director at frost & Sullivan.

“Mexico has become a leader in auto parts manufacturing. We have seen added value through worker’s productivity and

commitment, not only due to labor costs,” said Gonzalez. Having Mexican teams has been essential for a successful landing, explained Hanft. “Companies need to let

their Mexican teams work. It is not the same as was 20 years ago. Now, there is a large number of professionals and we need to embrace this country’s culture,” he said.

REINFORCING NORTH AMERICA’S SU PPLY CHAIN

Supply chains in all industries have taken a hit from disruptive events that have gone beyond the pandemic. High demand for semiconductors and tight supply, the blockade in the Suez Canal that is still wreaking havoc and the new USMCA have posed enormous challenges for numerous industries, especially automotive. Mexico, however, holds a privileged position to put itself ahead of other regions in the world.

In recent years, national, regional and multinational companies have flocked to the country as an attractive destination to relocate their supply chains, said Mónica Doger, Director of the Clúster Automotriz from puebla and Tlaxcala. Attracted by both geographic and labour benefits, businesses from all industries have set their sights on Mexico, “not only for manufacturing but also for applied technology projects,” said Doger. yet the challenges Mexico faces in attracting further investment are numerous, she added.

According to Martin Toscano, president of Evonik, foreign direct investment in Mexico has not been impacted as much as in other

regions. “It has been hurt but we have been one of the countries that have been hit the least,” he said. “That is a good sign and a positive indication that we have lost our fear of the new USMCA and that it will bring a lot of opportunities.” Today, he added, Mexico stands as a global production hub for the aerospace and automotive sector, not only driven by its proximity to the US market, but also by its potential as an exporter to other regions.

Gradually, Mexico has moved from being solely a manufacturing country to become an attractive spot for r &D projects for national and international companies, said r uben Lostal, Location Manager of MUBEA. for this to fuel further growth, he added, encouraging more people to study engineering is key. “ r ight now Mexico is producing more engineers than the US per 100,000 inhabitants,” he shared. “We need to seize on that but we need to improve secondary education.”

The ongoing changes the country has experienced in its industries, coupled with

events including the pandemic and its disruption of supply chains, have prompted Asian companies to migrate to the region to centralize their value chains, said Cristobal Magallanes, Automotive Sales Director of SK f. “Suppliers to customers have been coming to Mexico,” he said. “This will allow for more competition and therefore level the playing field for everyone.”

Multinational professional services group K p MG, which in recent years has assisted the country’s manufacturing industry, has developed transformation strategies to help businesses seeking to establish operations in Mexico. “We help them take their projects from an operational and reactive stage to a more intelligent and

predictive one where technology is key,” explained Victor Galvan, Senior Manager of K p MG Mexico. Data mining, virtual reality, data analytics, AI and Industry 4.0 principles are just a few of the tools the company is leveraging to accelerate enterpri se growth.

Mexico also stands out globally for being “open for business,” Toscano said, because the regulatory environment is much less protectionist than at other large economies such as Brazil. To capitalize on Mexico’s unique strengths vis-à-vis other regions of the world, all players in the ecosystem have to pull their weight. “We no longer play alone,” Toscano stressed. “Today we are all connected in some way.”

MATERIAL TECHNOLOGY MUST KEEP UP WITH INDU STRY NEEDS

Across the world, mobility is adopting cleaner energy sources. But, hybrid, electric and smarter vehicles could not exist without the technological materials that make them possible. The entire supply chain must understand the specific needs and mega trends of the automotive industry, agreed industry experts.

“We all have to work with a collaborative mindset. I need to understand what my client needs are and adapt to them.”

Juan José Zaragoza President LATAM of DuPont

“ p layers have to adapt to the mobility of the future. The mega trends are clear in the industry: lightweighting, vehicle downsizing, comfort, security and sustainability. Sensors will play a key role. A washing machine usually has 11 sensors but autonomous cars will need over 3,000. The entire sector is working to meet those changing needs,” said Juan José Zaragoza, Latin America & Mexico p resident of Du p ont.

Developed economies have already adapted to the electrification tendencies,

and both governments and OEMs have set up different short-term goals for their companies globally. Making this possible requires that the entire value chain works as a team because automakers need the correct materials to develop smart vehicles. “Communicate, collaborate and create,” said Zaragoza. “We all have to work with a collaborative mindset. I need to understand what my client needs are and adapt to them.”

Energy sources, sustainable materials and electrification receive the most attention when talking about a more sustainable automotive sector. However, other practices such as lightweighting play key roles in driving the market toward cleaner, greater energy efficiency. Lightweighting swaps traditional materials for lighter ones, reducing the amount of material used. An average light vehicle weights 1.5 tons to 1.7 tons and half a ton of that belongs to a polymer that reduces the car weight substantially, while generating a greater resistance and security, according to Zaragoza.

Technology, digitalization, sustainability goals and the pandemic have all come together to create majorly change the

automotive industry, according to Luis Gonzáles, General Director at Automotive Cluster of San Luis p otosí. Every single material in the vehicle, both on its interior and exterior, will play a key role in making the industry su stainable.

Traditionally, paintings and coatings only provided cars with basic protection and decoration. Today, the industry demands much more innovation in their paints. “As the auto industry transforms, we have been innovating. Autonomous cars will need more coating. Design will change and interiors will need more intelligent and durable surfaces. Our paint has to adapt to the entire technology ecosystem,” said Adriana Macouzet, Vice p resident Latin America and General Manag er of pp G.

The automotive paint sector has also adapted technology common to the aviation industry, which enabled cars to connect effectively and communicate with each other and the environment (roads or stop signs) in the best possible way, according to Macouzet. Technology such as Lidar sensors has been implemented massively in Mexico. These sensors use eye-safe laser beams to create a 3D representation of the surveyed environment. A lidar sensor emits pulsed light waves to the surrounding environment, which bounce back to the sensor. The device uses the time it took for each pulse to return to calculate the distance it traveled.

“We work to improve cars’ visibility. f or instance, in the case of Lidar sensors, a black vehicle reflects only 6 percent of the close infrared signal that a white car would reflect, making a black car significantly less visible and less safe than a white car. We produce anti-reflect coatings and intelligent coatings that enable darker colors to have the same reflectance than clearer ones,” said Macouzet.

Innovation and smarter vehicles would not be possible without better, smarter tires. “Tires are the only part of the vehicle that touch the ground,” said p ierre-Louis Dubourdeau, p resident & CEO of Michelin Central America. The industry is also building state-of-the-art tech solutions for the tire industry, including connected, rechargeable and airless tires. Smarter tires will also help collect data, which is useful for telematics.

“Airless tires will bring peace and security for drivers and the possibility to improve fleet productivities. The new tires we are developing will not need maintenance and our ecological footprint will be reduced dramatically. Twenty percent of the tires thrown away are destroyed while having useful life. That percentage represents 2 million tons a year that we could avoid with our new tires,” said Dubourdeau.

Textiles are also part of the automotive supply chain. “ fabrics have to be visually attractive

but easy to clean, with a long useful life. Technology brought software that allows us to keep a precise stock and serve our clients better. We have designed safer uniforms for the automotive industry employees,” said Elvia Bedolla, plant Manager at LAVArTEX.

Keeping up with industry needs is difficult for every player involved in the value chain, according to Zaragoza. The industry is changing rapidly and adaptation is key to address the difficulties. “Innovation has its risks and challenges. p roducing new materials is specially complicated and demands high investments with correct risk analyses to make them financially viable,” said Zaragoza. Innovation times

have been reduced considerably in the last years, raising players’ un certainty.

The main challenge will be to make EVs’ production truly scalable to massive production, said Macouzet. To do so, good communication between all players involved is necessary, especially considering the large initiatives and goals that OEMs have set for the future. Working on the EVs’ energy independence, lowering costs and boosting infrastructure are the main keys for the market to continue moving forward. “Our role is to become true allies of automakers for this to become a real, massive innovative production,” said Macouzet.

VEHICLE CONNECTIVITY INCREASINGLY CLOSER TH ANKS TO 5G

Over the past few years, cars have undergone a transformation towards the digital as manufacturers have fitted screens and sensors into vehicles. However, the industry has been waiting years to offer a truly interconnected service ecosystem. The tool it needs to do so is almost here: 5G technology.

“The automotive industry has been waiting for a network like 5G to be able to offer new services like autonomy and cloud access,” said r icardo Anaya, p roduct Manager at Qualcomm. The emergence of 5G networks is essential for digital

transformation as it allows automakers to deliver new services including up to 8k resolution. “5G is going to transform the way we distribute video like 4G did with audio,” explained Anaya. “It is already natural for everyone to listen to music on streaming platforms and that is made possible by a network that supports the bandwidth necessary to do so.” 5G will do the same thing except that it will focus on video, he added.

With the speed capabilities that 5G will bring (over 100 Megabits per second, Mbps), “working in the cloud will be as working in

the internal memory of a computer.” Network latency, which refers to the time it takes for data to travel from one place to another, is essential for the automotive industry as it will enable “remote decision making” in autonomous processes. 5G offers an extremely low latency rate, said Anaya. “This migration will enable millions of devices to be connected.”

As the network grows, powerful processing close to where the connections are will enable new forms of collaborative work. “ you can make simpler devices with more battery life,” said Anaya. “This happens when you have good processing between the end device and the edge AI.”

5G must be based on global standards and be interoperable and easy to replicate. “The 5G that is being applied in Germany is similar to what we expect to be implemented here in Mexico,” said Anaya. According to GSA data, as of the end of July 2021, there were over 175 operators with 5G commercially deployed in over 70 countries and over 285 additional

operators investing to deploy 5G technology globally. “These numbers indicate that half the world has officially set its sights on 5G.”

According to Qualcomm, 5G will enable US$13.1 trillion in global sales activity by 2035. “All industries are going to capitalize on this technology,” Anaya explained, “The automotive industry, in particular, has been waiting for it for years.” The transformation that this network will bring to the sector includes manufacturing processes with collaborative robots, sales and maintenance processes, service automation, in-car experiences and interconnected transportation services such as traffic signals, bridges and infrastructure. “The priority is for a person to get in their car and arrive at their destination as safely and efficiently as possible.”

Today more than 120 million cars are powered by Qualcomm technology around the world. “The car is one of our top priorities right now,” s aid Anaya.

AI, MACHINE LEARNING OFFER MANUFACTURING REAL SOLUTIONS

Artificial intelligence (AI) and Machine Learning (ML) are opening new possibilities to the world’s industries, including the automotive sector. Once these technologies reach their full capacity and create an integrated ecosystem, all the automotive supply chain could reap substantial benefits..

“The automotive sector is advancing toward AI and ML but we need to change the mindset of companies. Sometimes people think that this technology is highly expensive or complex but there are numerous tools available for Tier 2s”

Sergio Bautista

Robotics

Local Business Unit

Manager

of ABB

The pandemic, technology and changes in consumer behavior are disrupting the operation and processes of companies. Automakers, suppliers, dealers and everyone involved in the supply chain need to adapt to changes, taking advantage of the new technologies powered by data.

Despite not necessarily being electric, newgeneration vehicles are getting smarter thanks to software and telematics systems that generate data and connect with other vehicles. “Analytics and big data are starting to focus on specific industries in Mexico. We have hyperconnectivity, with huge amounts

“The technology is already here. Mexico’s problem is that while it some sectors are boosting Industry 4.0, Industry 1.0 is still rampant in others. The automotive sector is advancing toward AI and ML but we need to change the mindset of companies. Sometimes people think that this technology is highly expensive or complex but there are numerous tools available for Tier 2s,” said Sergio Bautista, robotics Local Business Unit Manager of ABB.

of data being generated. The right connection and use of this information helps lifecycle management, processes design, supply chain management and manufacturing processes,” said Javier Vallejo, Senior Manager of Architect Solutions of AWS.

AI is not only used for autonomous vehicles, it is also useful for forecasting, according to José r ivero, Country Manager of Infor. “The pandemic taught us the importance of assertive forecasts,” which based on ML motors and analytics models could predict future demand with precision. Manufacturing plants continue adding sensors and “collecting tremendous amounts of data,” said rivero. These sensors enable companies to know how machines are working in real-time and forecast the ideal moments to do preventive maintenance, saving time and money.

Telematics offer similar benefits when used in vehicles in movement. Sensors in vehicles provide information about the car’s health, ideal maintenance times and drivers’ behavior. AI came to change every part of the automotive industry, from manufacturing to sales, fleet management, insurance companies and autonomous vehicles.

AI solutions are being offered “to clients looking to give their customers a plus, aiming to reach the highest standards of quality,” said Abraham Sosa, Director of Global Accounts in Latin America at Universal robots. Collecting data is key to take well-informed decisions. However, collecting information is not enough.

“Data is vital in the manufacturing process. you cannot improve something that you did not measure to know its exact condition. Integration to an ecosystem is needed for a future intelligent plant that is able to automatically control processes, stockage, budgets and forecasts,” said ricardo Anaya, product Manager at Qualcomm.

Volkswagen, one of the most important employers in Mexico with over 15,000 employees in its two plants, has already started a digital revolution in its plants across the world. The German automaker will invest

US$1 billion during the coming years in its three plants in North America to successfully implement technology such as cloud software, intelligent robots and AI, which require exhaustive training and capacitation. With the unified software launch, Volkswagen will be able to optimize collaboration between its plants, upgrade the work environment for its employees and suppliers and improve the manufacturing process in general.

Adaptability is key. It is not only about OEMs or Tier 1s, companies need to know how data influences the entire supply chain. “Volkswagen is connecting its 120 plants with over 500 suppliers in on single data protection strategy to speed up the complete process from the beginning to the final consumer,” said Vallejo.

The main challenges that AI and ML face both in Mexico and the world are the standardization and homologation of information, agreed industry experts. “ people talk about a fully integrated ecosystem, but this is idealized; it still does not exist,” said Bautista. Mexico does not lack people talented in data science. Electrification and new tendencies in the automotive sector will change the industry. AI and ML will have to keep up with the new needs and different processes that OEMs are implementing, said Bautista.

Technologies such as AI and ML are yet to see their best, full potential, according to Sosa, but to reach it companies need to trust the technology solutions offered. “We have to traduce the solution created with data into something applicable to real life and have a technology-flexible client to test the solutions offered,” said Sosa.

The biggest challenge is not developing new technology but to smartly use the one already available, according to Vallejo. Tech managers and company decision makers need to clearly identify which pieces of information are the ones needed to make the decisions and “avoid the temptation of activating hundreds of alerts that will not really help. It is important to focus on key pieces of data,” said Vallejo.

Data translation into real solutions is only possible with hard, prolonged work, agreed experts. Integration and the

MEXICO IS READY FO R MORE R&D

Mexico is home to 14 light vehicle OEMs, 10 heavy vehicle OEMs and hundreds of Tier 1 and Tier 2 suppliers. While it is a promising land for manufacturing operations, companies are now recognizing its potential for r &D and engineering operations, and investing accordingly..

“In the early 2000s Faurecia’s three facilities in Puebla were fully focused in manufacturing. But, the company was aware of where the industry was going so it started to invest in engineering operations. In 2007, we launched our first R&D center in Santa Fe”

Karla Góngora

R&D Director México of Faurecia

“In the early 2000s f aurecia’s three facilities in p uebla were fully focused in manufacturing. But, the company was aware of where the industry was going so it started to invest in engineering operations. In 2007, we launched our first r&D center in Santa fe,” says Karla Góngora, r&D Director México of faurecia. years later, the company realized it was ready for new r&D centers and launched one for seating and interiors.

Other companies have also seen Mexico’s potential for engineering and research. Bosch inaugurated and r &D center in Guadalajara, also known as “Latin America’s Silicon Valle” for its technology parks and companies, in 2014. Bosch now has about 450 employees in that center but aims to double its capacity within the next five years, said Eduardo Watty, Mobility Director Mexico at Bosch. The company also has an engineering center in San Luis potosi that focuses on powertrain solutions and electrification. “Mexico is becoming a country not only for manufacturing operations but also for product and

creation of a connected ecosystem will play key roles in the following years for the automotive industry.

software development. Mexico is having a more prominent role by capitalizing on its competitive advantages to accelerate its role in the automotive sector,” said Watty.

The country is shifting from maquila production–manufacturing lowtechnology parts at a smaller cost–to “mindfacturing,” a play on the words “mind” and “manufacturing” meant to reflect the education, knowledge and technical capabilities of the local labor force. Now, the priority is for universities and training centers to provide the talent the sector needs. “We need to generate that knowledge. It is necessary that new students and graduates have a mindset for innovation,” says Alejandro r ojo, Director of Automotive Center for Advanced Mobility at Tecnológico de Monterrey, one of Mexico’s leading private uni versities.

Mexico’s mindfacturing trend is only a reflection of the country’s “natural evolution,” said r ené Montaño, Director of CIDETEQ, a chemical research center in Queretaro. “There has been an evolution from manufacturing to design and engineering. It is an opportunity to innovate and acquire experience. It is also a natural evolution as Mexico improves its capabilities to train human resources.”

The accelerate rate at which the automotive sector demands product innovation is driving both companies and research centers to innovate. “It is all about where are we going and what we are expecting from mobility in the future,” said Watty. There are four major mobility trends, he adds. The first is personalized mobility, which implies the incorporation of new services and solutions that allow for digital interaction. Second is autonomous mobility, which requires different architectures for AI applications that foster its advancement.

At Bosch autonomous mobility “is part of our vision to have zero accidents. We are incorporating sensors and lidars to ensure a safer environment.” The third is connected mobility, which Watty forecasts will gain more importance in the coming years as vehicles use a wider variety of services. fourth is electrified mobility. “We need new powertrains and standards that reduce our carbon footprint. At Bosch we remain active in powertrain electrification and we continue improving our ICE engines in our r &D center in San Luis p otosi. In Guadalajara, we have our software development center. We are pushing forward that mobility is fun, wonderful and financially efficient,” said Watty.

r esearch centers and universities are supporting companies achieve their autonomous and electromobility goals.

“We have focused in the development of electric and autonomous vehicles

as they are our two strategic pillars for 2030. f or over 15 years we have supported companies design electric power trains and we have created a solid national network that supports different companies in different regions. We are now assessing autonomous and electric vehicle capabilities,” said r ojo. CIDETEQ is also supporting electrification projects. “CIDETEQ is an electrochemistry center in which we study electro deposits and how chemistry produces electricity. We develop batteries, fuel cells and other elements,” says Montaño.

Mexico has the resources, potential, infrastructure and people become an r &D destination. It only needs support and collaboration among all players in the country. “We have a clear vision of all that Mexico can achieve and we are committed to provide all the tools it needs to do so,” says Gógnora.

TRACEABILITY, CLEAN ENERGIES: KEYS TO CARBON NEUTRALITY

OEMs have set ambitious carbon neutrality goals but the supply chain not far behind in reducing carbon emissions. Current strategies highlight two key elements: resource and energy management, and supply chain tra ceability.

“Carbon neutrality requires a neutral output of CO2 emissions. If a company is generating CO2, it must mitigate that impact some other way,” said pablo rivero, Country Manager of fore fron t p ower.

“Carbon neutrality requires a neutral output of CO2 emissions. If a company is generating CO2, it must mitigate that impact some other way”

Pablo Rivero Country Manager of ForeFront Power

Companies must first identify what lays behind most of their carbon emissions. Toyota’s 2020 environmental report shows that out of 15 categories in

its manufacturing chain, “purchased goods and services” accounted for 16.4 percent of its CO2 emissions. f or that reason, OEMS must push suppliers to also implement sustainability strategies. To date, most strategies are based on reducing emissions in operations across the supply chain. “OEMs should understand that sustainability implies a long-term strategy for a foundational supply chain in which it is actively working to reach zero emissions. That also implies ethical material supplies,” said Ana Núñez, Digital Supply Chain Center of Excellente Mexi co at SA p

Nuñez explains that a functional strategy should be based in a mutual interest from OEMs and suppliers to build the foundations to implement a carbon neutrality strategy, which can be achieved through delivery process optimization and efficient equipment, among many other tools. “Digitalization is not only about production process but also to take data into account to optimize decisions,” said Núñez

r esource management, particularly water and electricity, is essential to manufacturing operations, especially once companies consider the role their surrounding communities can play in their optimal operations. “Communities in a better position to interrupt industrial process in the automotive industry than in the mining sector, particularly with all elements involved with water resources. Companies must perform acquire social licensing to perform these processes and avoid being considered the enemy,” says Luis Vera, Managing p artner at Vera y Asociados. from a legal perspective, there can be significant variations in the way the water expelled by a plant is labeled but this is a matter for local or federal au thorities.

The first step in gaining public trust could be a solid framework for water use, as Audi México observed at its plant in San Jose Chapa, puebla. “We are the first entity to be waste-water-free in puebla. We earned this recognition thanks to our lagoon, where we use rainwater for our processes instead of freshwater,” Andreas Lehe, f ormer president of Audi Mexico, told MB N in 2019.

Electricity management is also key, as the proper use of this resource can have benefits beyond sustainability, it can impact future contracts. “Auto part suppliers are motivated by OEMs requirements to share their carbon neutrality goals,” said r ivero.

“We used to design and built large solar parks, but due to ongoing changes on the regulatory realm we now have more than 100 projects operating in a medium and small scale, most of them on site.” forefront builds the renewable energy facilities and then sells the electricity to the companies.

Collaboration between OEMs and suppliers has been essential to drive change. Companies are pushing to provide visibility and traceability of all the components that go into the vehicle, from the engineering and design to the point when the vehicle reaches the endcustomer, explai ned Nuñez.

“Most OEMs and suppliers monitor and measure their carbon footprint emissions at certain points of the chain due to existing regulations. But to ensure that the operation meets all regulations rules, the entire process and components must be traceable. Companies should also evaluate how those emissions will be replicated in the production line and analyze how to optimize these routes until the vehicle reaches the dealership floor,” s aid Núñez.

Digital threads and resource management play a key role in both ensuring traceability and providing visibility to the various players within the supply chain. “The very first strategy is to measure its carbon footprint,” says r ivero.