Mexico Automotive Review 2021-22 by Mexico Business Publishing

2021/22

Introduction

The automotive sector is adapting to seemingly unending challenges. Following a historic pause in production that ended years of production highs, Mexican companies had to secure their manufacturing plants to protect their workforce from COVID-19. Suppliers gradually resumed operations as demand from OEMs renewed with the lifting of pandemic-related lockdowns. However, companies across the supply chain faced a new challenge in the form of semiconductor shortages. Now, companies in North America are facing logistics constraints when bringing components from Asia as container prices have skyrocketed. Ongoing international hurdles and a thirstnned for uninterrupted operations have created new nearshoring opportunities for Mexico to take advantage of. Still, further local supply chain development is required. Challenges, however, are not stopping OEMs’ transformation processes— the biggest in 100 years — from car manufacturers to mobility providers. Connected, autonomous, shared and electric vehicles are strongly influencing manufacturing operations, driving material technology innovation and fostering Industry 4.0 adoption. The EV market is still incipient in Mexico, both in terms of sales and production, but positive expectations abound as more companies bring state-of-the-art projects, advancing Mexico’s position in the electrified automotive future. As the industry embraces challenges and disruption, this new edition of Mexico Automotive Review gathers the key decision-makers in the industry, , providing an insiders’ perspective and in-depth analyses. Learn directly from those shaping the sector where companies stand and where the industry is going.

Table of Contents

Introduction

State of the Industry

Manufacturing Trends

Material Technology

Industry 4.0

Connected, Electric Vehicles

State of the Industry OEMs are transforming their business while coping with the pressing challenges the industry is experiencing. Three of the Top 5 OEMs in Mexico in sales and production, Toyota, Nissan and Volkswagen, as well as the leaders in luxury vehicle sales, Mercedes and Audi, share their perspective on the industry’s recovery and how each brand is dealing with supply shortages and pressing inventory figures. At the same time, industry leaders share their long-term plans to become sustainable and resilient mobility providers. Leaders from AMIA, ANPACT and INA assess the general impact of the constraining circumstances while detailing the priorities for the years ahead, including government partnerships to secure the automotive industry the contribution of to Mexico’s GDP.

State of the Industry

Analysis Challenges Herald a Transformational Period

View From the Top José Román | President and Director General of Nissan Mexicana and NIBU

View From the Top Edgar Estrada | Director General of Volkswagen Brand Mexico

View From the Top Luis Lozano | President of Toyota Motor de México

View From the Top Jaime Cohen | Managing Director of Mercedes-Benz Mexico and Latin America

View From the Top Gerardo González | General Manager of American Industries

Analysis Automotive Expectations Post-Midterm Elections

View From the Top José Zozaya | President of AMIA

View From the Top Miguel Elizalde | President of ANPACT

Conference Highlights In the Short Term, Supply Will Drive Demand

Infographic FDI Investment in the Automotive Sector in Mexico

View From the Top Michele Porrino | Executive Director of WTC San Luis Potosi

View From the Top Manuel Montoya | President of the Automotive Cluster Network

Roundtable How Is the Industry Transforming on the Path Toward Recovery?

Content Links

State of the Industry | 7

Challenges Herald a Transformational Period The automotive industry in Mexico continues to adapt to urgent circumstances. In the aftermath of the pandemic, a shortage of supplies and logistics constraints are slowing the pace of manufacturing lines. Meanwhile, the ongoing transformation toward a connected, autonomous, shared and electric mobility is more evident than ever. “We face a common challenge as a sector, which is the shortage of some components needed to manufacture our vehicles at the volumes necessary to meet the needs of the market. We have not met the demand given that we are not producing at 100 percent capacity,” says Edgar Estrada, General Manager Mexico of Volkswagen. Despite not operating at full capacity, leaders among Mexico’s Top 5 sellers and producers remain optimistic about the road to recovery. “The automotive market operates in cycles. The sales cycle had reached its peak and was in a lower phase when the pandemic arrived. We have already hit the lowest point in the curve and now we are again moving upward. Mexico has the potential to sell 2 million units per year. In a regular year, we sell about 1.3 million units but it is possible to sell more. In 2020, the industry sold just below 1 million. For 2021, we forecast that sales will surpass 1 million. In a couple of years, we will reach 1.3 million again,” says José Román, President of Nissan Mexicana and NIBU. At the same time, the industry is undergoing one of its largest transformation periods in history. OEMs are working alongside suppliers to ramp up a successful connected, autonomous, shared and electric mobility strategy. “Manufacturing a vehicle is complex, given all the components that are needed. We work closely with our customers because we consider them to be key business partners. In many cases, we have our suppliers within our manufacturing plants and we work together on the transformation processes the industry is living, whether related to electrification or USMCA’s regional integration processes. Close communication is the secret,” says Luis Lozano, President of Toyota Motor de México. “The automotive industry is going through significant challenges but we have to put 2020 behind us. Despite the circumstances, we continue to meet our customers’ expectations and provide them safety, efficiency and state-ofthe-art mobility, fueled by innovation,” adds Estrada. Sector leaders are clear about the role auto parts manufacturers play in the country and the sector’s development, as well as the importance of adapting to new circumstances. “We are the fifth-largest auto parts 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 Read the complete article More about this topic

and remittances sectors, even larger than tourism. Millions of families rely on the automotive sector,” says Alberto Bustamante, Deputy Director of INA.

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Q: How did recent challenges to the automotive sector make Nissan’s manufacturing and sales operations more resilient? A: This is a very interesting moment for the automotive industry. As I say to my teams: Never let go of the opportunity a crisis brings. The pandemic taught us many things, including resilience. We decided first and foremost to focus on our objectives and strengths. We know how to manufacture and sell cars. Thus, we designed a strategic plan to address the pandemic alongside employees, dealerships and suppliers. In this crisis, we continue to learn. Q: How did Nissan support its dealership network and supplier base in Mexico amid the pandemic? A: More than support, it is about strategy. We provided them certainty, clarity and a clear direction. The first thing we did was to protect our work teams. Once we ensured the safety of our teams at our facilities and corporate offices, we decided to resume production. With more than 15,000 people employed, we had a great responsibility to protect them. We also created crisis committees with distributors, employees and suppliers. Together we are stronger, as our motto says. We did the right thing for our employees and our customers too through Credi Nissan. This moment taught us that we owe ourselves to the Mexican market and we want to be here for 60 more years and beyond. The market

José Román

is halfway to recovery and it still has a great deal of potential. Q: From a general perspective, how have chip shortages influenced the automotive industry in Mexico?

President and Director General of Nissan Mexicana and NIBU

A: The automotive industry in Mexico has always been closely related to the US from a long-term perspective. The pandemic is showing us that we also need to focus on the short term. The secret is to balance short- and long-term strategies. Chip shortages

Nissan Eyes Another 60 Years in Mexico

will eventually pass and the next step will be to develop more suppliers at different locations to avoid concentrating production in a single region. Over the last few years, supplier consolidation has proven to be successful but chip shortages have made us rebalance our priorities. Q: What are Nissan sales and manufacturing priorities for the Mexican market? A: Mexico is our fourth-most important market worldwide, after China, US and Japan. Being the best seller in the country entails commitment with our customers to bring them state-of-the-art manufacturing quality. In manufacturing, we do not compete domestically; our factories compete against others across the world. Within Nissan North America, the facilities in Mexico produce the largest number of models. The lineups have proven successful. Sentra, Versa and Kicks have been really successful both in the US and Mexico, despite the pandemic. 2021 will be a year for stabilization and improvement and the sector will eventually put chip shortages behind it. We have a strong dealership network with outstanding after-sales

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service and excellent sales teams. By combining these factors with our customer care the natural consequence is to hold first place and increase our market share. The right path is to really focus on what our customers want, whether it is safety, intelligent mobility or electrification.

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Q: Volkswagen is one of the three highest-selling brands in the Mexican market. What is behind this success? A: Volkswagen is the third-largest brand in Mexico with a 10 percent share of the automotive market. We have a 65-year legacy in the country and have been part of the lives of all Mexicans, whether through previous or new models. The automotive industry is going through significant challenges but we have put 2020 behind us. Despite the circumstances, we continue to meet our customers’ expectations and provide them safety, efficiency and state-of-the-art mobility, fueled by innovation. Our strategy is to adapt ourselves to what consumers are looking for, from the very first sales contact to the aftersales. We reinvent ourselves daily. The past 65 years are not just a legacy but a sign that Volkswagen knows how to adapt, innovate and interact with customers. Q: How are you supporting sustainable and shared mobility solutions? A: Shared mobility is part of the evolution of the industry and will eventually arrive everywhere. We need to generate alternative mobility models that serve everyone and are useful for the individual too. Car-sharing was advancing quickly in big cities until the pandemic hit. Megatrends and the

Edgar Estrada

circumstances of each city influence trends but the sector is focusing on working toward a more sustainable future. Volkswagen created a Way to Zero strategy to work toward

Director General of Volkswagen Brand Mexico

a zero emissions future. The deployment of this strategy will vary from market to market but at its core is sustainable mobility for society. Q: How is the automotive industry

Improved Processes, Sustainable Future Pillars for Recovery

working toward a recovery? A: We face a common challenge as a sector, which is the shortage of some components needed to manufacture our vehicles at the volumes necessary to meet the needs of the market. We have not met the demand, given that we are not producing at 100 percent capacity. Semiconductor shortages are a global crisis. In August, they hit Volkswagen’s stock price and market share but we are confident we will recover in the coming months. However, the pace of the automotive sector’s recovery is faster than we expected, which shows the strength of the market. The automotive market is seeing a solid recovery and will likely experience growth in 2021 and will surely grow in 2022. Q: How are you securing your position in the very competitive Mexican market? A: Mexico has more brands than the US but a smaller market, showcasing the strong competition brands face locally.

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Differentiation can be achieved in two ways. The first is through the product and Volkswagen’s DNA is state-of-the-art innovation and vehicles. The second is through the customer experience. The Mexican market is one of the most competitive in the world and that makes it interesting.

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Q: How do you bring Toyota’s global leadership to the Mexican market? A: We are about to celebrate 20 years in the Mexican market, which we entered with a long-term vision and commitment. We started with Toyota Motor Sales Mexico and then built our first plant in Baja California in 2005, which manufactures the Tacoma. Given our success in Mexico, the company decided to establish a second plant in Guanajuato, also for Tacoma, and we later developed a joint venture at Mazda’s plant in Salamanca. Q: Chip shortages are the greatest challenge for the automotive sector in 2021. How has the shortage affected Toyota’s production? A: Toyota is a company that learns from its mistakes and that makes us stronger. A few years ago, there was a serious earthquake in Japan that hindered many of the critical suppliers of our manufacturing operations. At that moment, we were forced to innovate in our supply chain and we have learned from that experience. We also maintain close relationships with our suppliers and we continue to work with them and the purchasing areas to address the current chip shortages. We have only experienced minor affectations because of the situation. Q: What have been Toyota’s strategies to meet

Luis Lozano

USMCA’s rules of origin in LVC and RVC? A: We have been in North America for over 60 years. Our strategies have always been to produce where vehicles are consumed and

President of Toyota Motor de México

to purchase where we produce vehicles. This has been part of our philosophy for many years and allowed us to develop a strong and sophisticated manufacturing footprint throughout the years. At the moment, we have more than US$30 billion invested in

Evolution Toward CASE Mobility

North America, creating over 36,000 direct jobs. When we ramp up operations in a new location, we bring our suppliers to North America rather than import components. As a company with 15 plants in North America and a 60-year history, we were in an advantageous position to meet USMCA’s requirements. That being said, USMCA’s new rules of origin introduce changes in integration percentages that we will address. As always, Toyota will comply with all laws and regulations that are applicable. Q: What are Toyota’s priorities for the Mexican market in the coming years? A: We will continue our efforts toward electrification in the Mexican market. We have sold more than 65,000 hybrid vehicles in the country. Our goal was that at least 20 percent of the vehicles sold this year in the country are hybrid or electric. We surpassed that goal in the first four months of the year, with EV sales at around 30 percent. Many flashy announcements regarding electrification can be made but, in real volumes, Toyota is the company that has sold more electrified vehicles in the history of humanity, even more than all others combined.

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We are undergoing a transformation process in the automotive industry and Mexico has the unique opportunity to jump into that transformation. Toyota is interested in working with all stakeholders and the Mexican government is interested in grasping those opportunities.

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Q: How does Mercedes-Benz balance tradition and innovation? A: Our tradition is innovation. Carl-Benz himself invented the ICE car and throughout our history, we have had a constant rhythm of innovation. Mercedes-Benz patented features we now consider commonplace, such as airbags or the car’s security cabins. Tradition and innovation are not separate realms for us. We acknowledge that innovation takes resources and can be expensive but our passion for innovation is cherished by customers. Q: Within Mercedes-Benz restructuring strategy, what role does Mexico play for the Latin American market? A: We need to change constantly and evolve. Our restructuring strategy for Latin America acknowledges the role Mexico has played for the brand. Now, we are going to take this expertise to other countries in the region. Though different, they share some common ground. Our task is to deliver the systems and features that address our customers’ preferences in the region. Q: How has the brand adapted to the ongoing challenges brought by the pandemic? A: There is a moment when you realize what really matters. We start by protecting our employees and customers and then to adapt to the changing conditions. Overall, the pandemic drove us

Jaime Cohen

to accelerate some of our strategies, particularly when it comes to digitalization. Our strategy for a digital world was accelerated. Dealership’s processes also went digital.

Managing Director of MercedesBenz Mexico and Latin America

Mercedes-Benz has the unparalleled trust of our customers and employees, which is also a great responsibility. Meetings and communications with our dealerships were essential. But after 18 months, the pandemic has not become the crisis or the cliff we expected in March last year.

‘Our Tradition Is Innovation’

Q: How is Mercedes-Benz advancing on vehicle connectivity? A: Mercedes-Benz vehicles include many connectivity-related features, such as screens, monitors and Mercedes Me, which are all part of a vehicle’s connectivity. Connectivity is also about safety. We have implemented impressive safety features due to vehicle connectivity. In the new S Class, for instance, the vehicle height is balanced by a number of sensors placed everywhere. When a vehicle senses an imminent crash, it adapts to lessen the impact. A vehicle no longer is just about an engine and seats; it is a powerful computer. There are more changes coming. There are times of transformation in the automotive sector and we are now living one of them. Q: How is Mercedes-Benz supporting the electrification revolution? A: By the end of the decade, our entire portfolio will be purely electric, including our sport lines. Globally and in Latin America, we have all the elements to achieve that goal. We have the people, the

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talent, the engineering capabilities and the dealership network to sell it. Some are worried about several challenges for a fully electric market but those will be addressed. Infrastructure, for instance, will grow organically as people become more conscious of their environmental impact.

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Q: What makes Mexico an attractive market for foreign industrial companies? A: Mexico is a highly competitive country. Despite some regulations that may deter foreign investment, the country still has many advantages, such as sharing a border with the US, the USMCA and a privileged geography with important ports that connect Mexico to the world. The country also has a competitive workforce that remains affordable even after recent salary increases. The Mexican workforce is highly skilled, available, highly productive and competitive. Q: Why do companies reach out to American Industries? A: American Industries’ mission is to help foreign companies establish operations in Mexico. If a company enters the country on its own, it will have to perform research from day one, making the learning curve longer and painful. It takes time to become familiar with different legal requirements, customs and reforms, such as the new Labor Law Reform that bans outsourcing. Working with us, companies can shorten that long learning curve because American Industries has their back. We help our clients do what they do best while we take care of the paperwork, operations and consolidation of the business in Mexico. Companies reach out to us to make their landing easier and more successful.

Gerardo González

A: What makes American Industries the best alternative over its competitors?

General Manager of American Industries

A: There are several key factors that put us above our competitors. The first is our experience. We have 46 years of experience working in this specific market niche, having assisted over 250 foreign companies from all over the world and from many industries. American Industries offers an all-inclusive package,

Mexico’s Advantages Spur Foreign Investment Allure

unlike other suppliers that offer services exclusively for customs, human resources or finance. We are a one-stop shop, offering our clients an integral solution. Other important differentiators are the certifications and licenses we hold. For instance, we hold the IVA-IEPS certification, which is rare among Mexican companies. Through this certification, we get a tax credit from local authorities that allows our clients to avoid paying the 16 percent VAT for every piece of machinery, equipment and raw material they import. Our value offer is the result of our technical, tax and commercial expertise plus the networking we do with industrial chambers, associations and local and federal governments. Q: Have you detected more Asian companies looking to establish operations in Mexico? A: There has been greater interest from Asian companies since the USMCA came into force. We have been able to attract some Chinese and Asian clients, some in the Bajio region and others in the north, especially in Monterrey. This is thanks to the representation office we opened in Shanghai early in 2020. This

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phenomenon was boosted by USMCA’s new rules of origin, which establish that foreign companies aiming to have a strong presence in the North American market have to be located on the continent. Before this new regulation, Asian companies were able to produce in other zones and export to North America.

State of the Industry | 13

Automotive Expectations Post-Midterm Elections The results of Mexico’s midterms elections held on June 6 are a positive sign for investors and industry leaders. President Andrés Manuel López Obrador’s ruling MORENA party is now below the qualified majority in the lower chamber of the Mexican Congress that is needed to amend the Mexican constitution, a development that will boost the confidence of foreign investors, industry leaders say. With a participation rate above 52 percent, the highest for a midterm election since 2000, the election was one of the largest ever held as more than 20,000 public posts were contested from the lower chamber of Congress and 15 governorships. The preliminary results give López Obrador’s coalition 279 seats divided among MORENA (197), PVEM (44) and PT (38). This is 53 seats short of a qualified majority in Congress that would have allowed the administration to fast-track initiatives like amending the Constitution. The incumbent governors of two key automotive states, Queretaro and Chihuahua, won re-election, while a third, Nuevo Leon, saw a change at the top. Chihuahua, in Northern Mexico, is home to the greatest share of historic FDI in the automotive and auto parts sector since 1999 and the opposition party PAN conserved its governorship in the state. The same happened in Queretaro, located in the Bajio area and home to the largest aerospace hub in the country. Nuevo Leon, also in the north of the country, is the second-largest contributor to Mexico’s nominal GDP. The state is home to Kia and Tier 1 and Tier 2 companies for the automotive and aerospace sectors. Previously governed by an independent-party official, the state was won by one of the election’s youngest candidates, Samuel García (34), from the Movimiento Ciudadano (Citizen’s Movement) party, which also governs Jalisco, Mexico’s third-largest state economy. Results Provide Certainty The automotive industry, contributing 3.4 percent of the country’s GDP and 20 percent of manufacturing GDP, is one of Mexico’s main economic engines. Industry leaders agree that the election results send the right signal for investors. “Today, the automotive industry in Mexico faces the challenge of remaining competitive. Having different views and political positions in Congress now is good, but we need to align the interest of the business community with that of politicians. For us, the election results are a positive step because we will now see different ways of thinking represented. The results of the elections will help to attract more investment to the country as the House of Representatives will be more diverse in terms of political parties. This will give foreign investors more confidence in Mexico,” said Manuel Montoya, President of the Mexican Automotive Cluster Network. Miguel Elizalde, leader of the association representing the interest of heavy-vehicle OEMs in the country, ANPACT, agrees that plurality is a bridge to constructive dialogue. “We will have a plural Congress, where dialogue and agreements will play a central role, particularly regarding constitutional reforms,” he said. For the president of AMDA, another major industry

association in the automotive sector, the election results showed the strength of Mexico’s democracy. “Citizen participation reached 52 percent. Political forces had wins and losses. The fact that there are no absolute losers or winners is a good sign for democracy,” Guillermo Rosales told MBN. The Right Sign for Investors Although CEOs of major companies in the automotive sector generally believe that the election results do not fundamentally alter their business, they also think the results send the right signs for potential investors. For José Román, CEO and President of Nissan Mexicana – the country’s top light-vehicle seller with 21 percent market share and the second-largest producer in the country – Mexico’s role as the sixth-largest vehicle manufacturing market in the world and the world’s fourth-largest light-vehicle exporter will need to be grounded in collaboration between the public and private sectors. “We will continue to work alongside federal, local and municipal governments for the benefit of our customers in the country,” he said. Brand Manager of Mexican EV automaker Zacua, Nazareth Black, also sees a promising scenario after the election. “Seats lost by the ruling party create counterbalances, which are always positive as different perspectives are now considered during the decision-making process. I see a positive scenario as counterbalances in Congress will reduce uncertainty for companies and investors, which will help many investment projects to flow, many of them in the automotive sector,” she said. Topics on the Agenda Industry leaders have also pointed out that regardless of the party, there are important topics to be addressed by Congress. In the heavy-vehicle sector, for instance, priorities include legal consistency and sustainable mobility. “At ANPACT, we will promote an integral policy for transportation that considers vehicle renewals. What we heard from some candidates hints to the possibility of creating agreements that target a safe and sustainable mobility,” said Elizalde. For AMDA, strengthening the domestic vehicle market requires a fiscal adequation. “There are still opportunities in tax deductions after purchasing a vehicle, the absence of fiscal incentives for electric and hybrid vehicles, as well as the negative impact on the limitations to deductions established in the Income Tax Law,” said Rosales. Lastly, Montoya says the country must not forget its role within USMCA. “We have to take advantage of the agreement and take the opportunity to integrate more suppliers into the (automotive) industry value chains. We also have the challenge of implementing a labor reform that the government released in 2018 but that USMCA demands we implement faster.”

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Q: What are the main challenges Mexico’s automotive industry faces? A: Mexico’s economic recovery faces significant challenges. Specialists surveyed by the Central Bank of Mexico (Banxico) in July 2021 forecast 6.06 percent GDP growth in 2021 and 2.83 percent in 2022, while inflation is expected to reach 5.94 percent in 2021 and 3.70 percent in 2022. Hand-in hand with the limited expectations, other analysts point out that during the next six months, economic growth will be hindered by public insecurity and domestic political uncertainty and market weakness. One of the most relevant difficulties we faced in recent months is the shortage of semiconductors caused by increased demand for the manufacturing of electronic devices, such as video game consoles, cellphones and computers. However, semiconductors are also a key part for the production of cars because they are used in vehicle control systems, speedometers, proximity sensors, tire sensors, alarm detectors, seat belts, cameras, fuel injection and infotainment systems, among others. Q: How are OEMs in the country performing on the road to recovery? A: OEMs have done as well as possible under present circumstances. Despite the issues, OEMs have worked hard to

José Zozaya

stay up to date with market expectations and challenges. At the beginning of the year, we expected an increase in production and exports of 12 percent compared to 2020. But the results of July and August have forced us to reexamine our forecasts. We expect

President of AMIA

figures similar to last year due to the scarcity of semiconductors. Q: How are OEMs coping with constrained production figures? A: Each corporation has a different global strategy but none will be

Sustainability Remains a Priority as Automotive Sector Recovers

a short-term easy solution. We expect that the sector will recover by mid-2022. But investments to increase the production capacity of semiconductors will take at least two to three years to bear fruit. Q: What are the challenges and opportunities to consolidate CASE mobility in the country? A: Mexico has great potential to produce electric vehicles, as can be seen in our report on the sale of hybrid and electric vehicles. In June 2021, brands sold 4,344 hybrid and electric vehicles, 157.7 percent more than the sales registered in June 2020 (1,686 units). During 1H21, brands sold 23,143 electric and hybrid vehicles, which represented 4.4 percent of total light-vehicle sales. We still have a long way to go in the transition to electromobility but AMIA has taken the first steps to promote and strengthen the use of hybrid and electric vehicles in Mexico. These vehicles are now manufactured in Mexico and OEMs continuously announce new investments in the production of these vehicles. We are communicating with the authorities and members of the industry to tackle the accelerated changes caused by global trends, such as the use of technology in sustainable transport

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alternatives to face the greatest environmental challenges. However, to achieve this, the sector needs a comprehensive vision to respond to the challenges derived from electromobility, such as the need to update the legal framework and new mobility and charging infrastructure, among other features.

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Q: How is ANPACT collaborating toward the creation of the New General Law of Mobility and Road Safety? A: We have participated directly and indirectly in the elaboration of this new law. The new law will provide a scheme to address all mobility and road safety concerns in the country. The draft of the new law defines the responsibilities and stakeholders involved. While a large part of the responsibility will lay on the Mexican Ministry of Urban and Territorial Development (SEDATU), it is a transversal topic that involves the ministries of transportation, economy, public security, finance and environment. Q: The deadline for NOM-044 to be enforced is coming. How is ANPACT preparing to meet the new requirements? A: The entire transportation value chain is looking for common ground to find a solution that reduces emissions, which might be vehicle park renewal with new technologies and fuels, such as ultra-low sulfur diesel. ANPACT’s members have invested strongly in this technology but the authorities need to ensure ultra-low sulfur diesel is 100 percent available nationwide. Older vehicles pollute the most but working with SEMARNAT and energy agencies it will be possible to find solutions. ANPACT proposes to have Euro V / EPA 07 (vehicles that use regular diesel) coexisting with Euro VI / EPA 10. We can find a solution, since ultra-low-sulfur diesel is not yet available nationwide.

Miguel Elizalde

Q: One year after USMCA entered into force, how are ANPACT’s members complying with new rules of origin and new labor standards?

President of ANPACT

A: USMCA entered into force on July 1st, 2020, it was a major challenge for the whole automotive industry, however for the heavy vehicle industry, there were certain things that made possible to comply immediately, for example we did not have any

The Heavy Vehicle Is Ready for Sustainable Mobility

immediate increase on our VCR, until 2024 we will need to comply with 64 percent of VCR and by 2027 with 70 percent of VCR. However, there were new requirements like steel and aluminum and labor value content that represent challenges during the implementation to the industry, since there was no precedent in the past. Today, all companies comply with all the requirements and disciplines without exception. We are ready to continue our exports worldwide leadership through the USMCA integration. Q: How will new heavy-vehicle power technologies transform the sector? A: It is important to maintain our competitive advantages to continue as leaders in both the light- and heavy-vehicle sectors. New technologies are arriving in the country, including electromobility, as many light-vehicle manufacturers are committing to only produce EVs. The sector will increasingly demand vehicles powered by alternative sources of energy, including natural gas, hybrid, electric and hydrogen. Mexico has already exported natural gas, diesel, electric and even hybrid heavy vehicles. The coming years will see stricter environmental

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standards across the supply chain. Sustainable vehicles represent about 1 percent of total production and exports and 98 percent of our exports head to the US. Should that market implement new rules, such as carbon taxes or similar measures, Mexico would have to adapt.

Conference

Highlights State of the Industry | 17

he automotive industry was hit hard by the COVID-19 pandemic and its negative effects are expected to continue into 2022. “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,” says Guido Vildozo, Senior Manager Americas of Light Vehicle Sales Forecasting at IHS Markit. The expected global light-vehicle sales forecast for 2021 is 80.5 million, says 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 drive 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, the projected impact from the semiconductor shortage for 2021 is over 10.5 million units globally

In the Short Term, Supply Will Drive Demand Guido Vildozo Senior Manager Americas of Light Vehicle Sales Forecasting at IHS Markit

and 2 million units for North America, according to Vildozo. “When the delta variant spread across Southeast 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 the reopening cycle usually takes between six and eight months. Considering that the shutdowns began in July, the situation will be normalized by the end of 1Q22, limiting 2022’s production,” says Vildozo. Regularizing the value chain is a complex challenge considering the pandemic’s varying progress globally, macroeconomic factors and governmental 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 million 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 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,” Herald Kroeger, Member of the Bosch Management Board, told CNBC. The situation becomes even more acute as electrification becomes 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 fewer platforms and less complexity. It will be highly

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electrified but with a reduced range of products. In North America, from 2022 the tendency toward the combustion engine will be negative,” says Vildozo.

FDI Investment in the Automotive Sector in Mexico FDI IN TRANSPORTATION EQUIPMENT PRODUCTION (US$ billion)

2000 8 6 4 2 0

2020

1.91

2019

4.23

7.36

2001 2002

2.32

1.59 2018

2003

6.83 1.80

TOTAL FDI IN THE MANUFACTURING SECTOR (US$ billion) 35

2015

7.13

2.46

10.63

15.70

2005

15.99

14.24

13.86

9.24 6.71

5.61

10.24 6.78 9.04 9.32 13.60 13.60 11.20

11.61 9.72

2016

18.87 17.80

3.20

18.03 15.45

7.93

2004

31.25

2017

2006

2.11

2013

2.29

2012

3.08 2010

2011

FDI IN VEHICLE, VEHILE PARTS AND VEHICLE BODY MANUFACTURING (US$ billion) 8.22

3.23 3.05 3.53

4.20

2.14

5.60

3.11 1.86 2

6.48

4.14

2.58

Source: Ministry of Economy

5.71

3.65 2.78

0.58

6.67

3.82 3.33

5.53 4

2020

2007

2008

1.83

3.24

1.63

2.89

1.99

3.97

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2014

2002

6.10

2001

2000

State of the Industry | 18

Infographic

2009

TOP 10 STATES FOR MANUFACTURING FDI BETWEEN 1Q10-1Q21 State

FDI in US$ billions

Coahuila

6.29

Chihuahua*

6.17

Guanajuato

5.88

Nuevo Leon*

5.85

Aguascalientes*

4.93

State of Mexico

4.77

San Luis Potosi*

4.18

Mexico City

2.10

Queretaro*

2.10

Morelos

1.97

*Some of the values reported by the Ministry of Economy were labeled as confidential

VIEW TOP State of the Industry | 19

from the

Q: What elements are helping WTC to boost the growth of its industrial parks? A: There are two major strategies. First, we are promoting the advantages that the San Luis Potosi region offers, especially through projects such as WTC in national and international markets. By highlighting our strengths, such as logistics, workforce and robust supply chains, we support companies looking to expand their operations in Mexico. Our message is that we are here and we can support you. The second strategy is to continue adding value for our customers. WTC is a premium industrial park, surpassing our clients’ expectations for an industrial facility. Understanding what companies at our parks need has been critical to our success, as that has allowed us to make major improvements, such as providing energy solutions and hotel facilities. We are constantly looking for additional benefits for our customers. Global players now aim to take advantage of the USMCA and make the most of the opportunities the treaty offers. WTC is here to help them. Q: Asian companies are developing a strong footprint in Mexico. How has WTC taken advantage of this trend?

Michele Porrino

A: This trend started about two or three years ago but the pandemic accelerated it by putting complex logistic chains at risk, leading companies to experience disruptions. Large companies realized that relying too heavily on Asia might be

Executive Director of WTC San Luis Potosi

a liability and began to turn to Mexico, first to reduce logistics costs and now, to reduce risks. We continuously support companies interested in Mexico. Once a company shows interest, we address the specifics to

WTC Positioned to Help Companies Benefit from USMCA

help them come and ramp up operations in the country. For example, we can suggest a particular location depending on the type of company. For automotive companies, we could suggest San Luis Potosi and for aerospace businesses, Queretaro. Some companies have requested support with opening plants in states or regions where we do not have a full industrial complex. In these cases, we support them by finding the right location and building a facility. WTC is also considering new locations to expand its industrial footprint. Q: Incentives, workforce, location and services are key variables in selecting an industrial location. How does WTC San Luis Potosi address these elements? A: When it comes to incentives, talent and workforce, we need to work closely with municipal, state and federal authorities. The authorities keep track of information on the educated workforce of a region, its capabilities and salary ranges, among other important elements that must be taken into account. We have used that information to advise our clients accordingly. Services and security also play an important role so we keep the park safe and provide all necessary services, such as internet, electricity and railway options as the park is located at the heart of the NAFTA corridor, facilitating logistics.

Q: What sectors have accelerated the most because of the pandemic? A: E-commerce was strongly accelerated by the pandemic and Amazon grew its footprint in the country. About 80 percent of Amazon’s imports enter Mexico through our preferential fiscal space, an additional service that we provide at customs to expedite imports. The aerospace sector is also growing consistently. Although it has a solid footprint in Queretaro, it is also expanding to San Luis Potosi. At WTC San Luis Potosi, we have a Chinese aerospace company about to finish building its first plant. Data centers, which support e-commerce and technological applications, are also growing. As these centers must be located in specific regions to properly support operations, we are seeing more investment in their construction. Q: What feedback have you received from the AAA customers that work in your facilities? A: Once a company decides to come to North America and then to Mexico, it must identify a region’s competitive advantages. Doing a greenfield project in a foreign market can be really difficult if done wrong. Companies look for sites with good logistics and supplies. San Luis Potosi offers a strong workforce, logistics and facilities. After a company has evaluated and chosen a location, it needs a partner it can trust. Being that trustworthy partner is what makes us different. Our clients have been satisfied with the support we’ve provided for their projects, operations and all other elements needed for a successful project. Q: How does WTC San Luis Potosi address sustainability concerns? A: We are constantly innovating in this regard. For instance, water supply is a major concern in central Mexico. WTC San Luis Potosi goes beyond having its own wells, as we also provide water treatment capabilities and incentivize our tenants to use them when possible. WTC continues to support sustainability practices and to look at the human element of sustainability. When we design our parks, apart from bringing third party energy companies, we think about the wellness of the people working here. At WTC II, we are building a linear park for recreation, giving a superior level of comfort to those who use it.

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VIEW TOP State of the Industry | 21

from the

Q: How has USMCA influenced the Mexican automotive industry’s supply chain and operations? A: USMCA is impacting the Mexican automotive industry mainly through the rules of origin, which now demand greater regional content. The original 62.5 percent of regional content is gradually shifting to 75 percent. Last year, it was 66 percent but this year it must reach 69 percent. By 2023, regional content will have to reach 75 percent. This means that the 12.5 percent of vehicle components that were previously imported from Asia or the EU now have to be produced in North America, leading companies in the region to look for local suppliers. Mainly Tier 1s are looking for Tier 2s to substitute imports. When supply does not cover demand, Tier 1s invite suppliers from Asia and the EU to establish in Mexico or the US. We have seen this trend intensify since last year. Rules of origin are changing the way Tier 1s operate. Q: Regardless of where OEMs are located, what characteristics make regions attractive for FDI? A: Investment will be very precise. Usually, Tier 2s focus on a very specific process so they invest in places that provide them with a skilled, specialized workforce rather than general labor. For example, an aluminum die-casting company would look for specialized technicians and engineers but they are not common, which could prevent regions from receiving FDI from those

Manuel Montoya

companies. Regions that have a large number of engineers, engineering centers and good universities are usually attractive for FDI. Regions must be prepared because they cannot develop these abilities from one day to another. In the coming months, we will see

President of the Automotive Cluster Network

interesting investments in the best-prepared regions. Q: What is the Automotive Cluster Network doing to integrate the supply chain and favor Tier 2 investment?

Complying with USMCA Requires Supply Chain Integration

A: Within the Automotive Cluster Network, we collaborate to learn from one another. With NAFTA, the most important Tier 1s of the world landed in Mexico but they did not develop local suppliers because it was not a requirement. This has changed. Tier 1s are now looking for Tier 2s and have found that there are not enough. Mexico should have five to six times the Tier 2s it has. To integrate the automotive cluster, we have to know where the suppliers are. Sometimes we look for suppliers in Nuevo Leon and find them in the Laguna region or in Chihuahua. We are connecting suppliers through the clusters and our network, which creates opportunities for local entrepreneurs to invest in Tier 2s, which do not require US$100 million investments as Tier 1s do. More Tier 2s will translate into wealth for the regions and economic growth for Mexico. Q: What role should Mexico play in the supply chain of semiconductors? A: The semiconductor crisis is a structural, global problem. Mexico does not have the technology and economic capacity to make the required US$15 billion investment to build up a semiconductor plant that will only start operations 24 months later. The entire industry relies on the big semiconductor manufacturers in Asia.

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The majority of manufacturers specialized in the auto sector are located in Taiwan, where they have been attracting investment and building an ecosystem for years. It is a very complex technology. Mexico should align to the investments taking place in the US and take advantage of its industrial connections.

State of the Industry | 22

How Is the Industry Transforming on the Path Toward Recovery?

The automotive sector is reinventing itself as a comprehensive mobility solutions partner. The leaders of Mexico’s top brands and manufacturers explain their own vision to transform themselves as the industry recovers.

Together we are stronger, as our motto says. This moment taught us that we owe ourselves to the Mexican market and we want to be here for 60 more years and beyond. The market is halfway to recovery and it still has a great deal of potential. The automotive industry in Mexico has always been closely related to the US’s long-term perspective. The pandemic is showing us that we also need to focus on the short term. The secret is to balance short and long-term strategies. Chip shortages will eventually pass and the next step will be to develop more suppliers at different locations to avoid concentrating production in a

José Román President and Director General of Nissan Mexicana and NIBU

single region. Over the last few years, supplier consolidation has proven to be successful, but chip shortages have made us rebalance our priorities.

We face a common challenge as a sector, which is the shortage of some components needed to manufacture our vehicles at the volumes necessary to meet the needs of the market. We have not met the demand, given that we are not producing at 100 percent capacity. Semiconductor shortages are a global crisis. In August, they hit Volkswagen’s stock price and market share but we are confident we will recover in the coming months. However, the pace of the automotive sector’s recovery is faster than we expected, which shows the strength of the market. The automotive market is seeing a solid recovery and will likely experience growth in 2021 but will surely grow in 2022.

Edgar Estrada Director General of Volkswagen Brand Mexico

The global automotive industry is undergoing the kind of transformation that takes place once in a hundred years. Toyota has decided to become a mobility company, although automotive will continue to be at the core of our business. We understand that if a person can move, they can be happy and achieve the impossible. We will continue our efforts toward electrification in the Mexican market. We are undergoing a transformation process in the automotive industry and Mexico has the unique opportunity to jump into that transformation. Toyota is interested in working with all stakeholders and the Mexican government is interested in grabbing those

Luis Lozano President of Toyota Motor de México

opportunities.

Omnichannel Approach Key to Improving Sales: Hyundai Juan Carlos Ortega | Marketing Director México of Hyundai

Mitsubishi Consolidating Growth Strategies Jorge Vallejo | Director General, Mitsubishi Motors de México

Despite Pandemic, Aftermarket Likely to See Long-Term Benefit Jean-François Champagne | President, AIA

Haskell: Supporting Manufacturing Investments in Mexico Luis Jiménez | President, Haskell

Inflection Point in the Mexican Automotive Market Guillermo Prieto | President, AMDA

Volvo Buses Ready for Long‑Term Effects of Pandemic Moshe Winer | Commercial Director, Volvo Buses

AMAVE: Only One in Five Mexican Companies Uses Leasing Liliana Anaya | Director General, AMAVE

Grand Chelem: Mexico’s Exotic Vehicle Dealer Martin Josephi | CEO, Grand Chelem

Kavak: Story of a US$4 Billion Company

04/13/2021

Mobility, Automotive Companies in Time100 Most Influential List 05/13/2021

Manufacturing Trends Manufacturing lines are being disrupted by domestic and international issues, leading vehicle and auto parts production to fall behind. Without a doubt, supply shortages remain the greatest challenge to resuming vehicle production at full capacity. The shortage of semiconductors alone will impact the production of 2 million units for the North American region in 2021. Simultaneously, facilities across the country continue to adapt to new labor standards to comply both with USMCA’s labor content value rule and the Mexican labor reform on union legitimation and outsourcing. As automakers push increasingly ambitious — and specific — carbon neutrality goals, upstream suppliers are adopting OEMs’ environmental requirements to reduce their carbon footprint and ensure more sustainable operations.

Manufacturing Trends

Analysis North American Vulnerabilities Exposed by Semiconductor Shortage

View From the Top Marek Maister | President of San Luis Potosi Automotive Cluster

View From the Top Pierre Louis | President and Executive Director of Michelin México

View From the Top Lourdes Cobos | COO of Yanfeng Automotive Interiors Mexico

View From the Top Francisco Carreon | Plant Manager at Stant

View From the Top Israel Escutia | CEO of GarantiPLUS México

Analysis Labor Complaints Under USMCA

View From the Top Luis González | Director General of San Luis Potosi Automotive Cluster

View From the Top Florian Hanft | Plant Manager at Sonavox México

Conference Highlights Heavy Vehicles and the Road to Sustainability

Infographic Light Vehicle Production Results

View From the Top José Ruiz | Partner for Supply Chain Operations at KPMG

View From the Top Eugenio Bergeyre | Business Manager of Haldex Mexico

Roundtable How Is the Supply Chain Adapting to Higher Sustainability Standards?

Content Links

Manufacturing Trends | 27

North American Vulnerabilities Exposed by Semiconductor Shortage As automakers speed toward a connected, autonomous, shared and electric (CASE) mobility, semiconductors have become essential. A single alteration in their supply can have a massive impact on the entire sector, as evidenced by the ongoing shortage that is hindering production lines. Deloitte expects that by 2030, complete electronic systems will represent 45 percent of the vehicle price and 50 percent of its total cost. OEMs shifting toward carbon neutrality and electric and hybrid vehicles could also increase the need for semiconductors. North America’s semiconductor vulnerability has been made evident during the COVID-19 pandemic. Complications started when COVID-19 shut down Asian production facilities. Honda, Ford, GM, Nissan, Audi, Stellantis and Daimler announced throughout 1Q21 different “production adjustments” at their North American plants, which varied from technical halts to reduced production shifts due to the scarcity of semiconductors. In Mexico, chip shortages and the severe winter weather in Texas dealt a 29 percent hit to vehicle production in February, with only BMW and Toyota increasing their output year-on-year. According to IHS Markit, production of 1.3 million units was lost in 1Q21 due to shortages. “The only thing that is currently limiting and slowing down recovery is the critical supply situation worldwide with regard to various semiconductor types,” Herbert Deiss, CEO of Volkswagen AG, said during the Hannover Masse. US President Joe Biden met with semiconductor industry executives in Washington in April to address solutions to this crisis. One of the strategies was to take US$50 billion from the US’ ambitious infrastructure plan to develop chip manufacturing in the US, although no mention of this was made in the Bipartisan Infrastructure Investment and Jobs Act agreed in August 2021. Some industry leaders also raised concerns about this plan. “Trying to reconstruct an entire supply chain from upstream to downstream in a single location is just not a possibility,” David Somo, Senior Vice President of ON Semiconductor and a participant in the Biden meeting, told Reuters. The availability of low-cost labor once drove semiconductor production to Asia. However, Chinese labor costs surpassed those of Mexican workers, according to tetakawi, a shelter provider company. Manufacturing labor costs per hour in Mexico stood at US$3.82 in 2016 while in China they were US$4.99. Average annual salaries for manufacturing workers can range from US$7,220 annually (unskilled labor) to US$12,255 (skilled labor) in the latter country, creating an oppportunity for Mexico to absorb this production once more. Currently, the country has an Infineon Technologies’ facility in Tijuana and an NXP Semiconductor facility in Guadalajara. Local governments could Read the complete article More about this topic

take advantage of USMCA to strengthen regional semiconductor supply chains given Mexico’s role as the fourth-largest vehicle exporter and eighth-largest producer of consumer electronics.

VIEW TOP Manufacturing Trends | 28

from the

Q: What is your perspective on the recovery on the industry after the peak of the pandemic? A: The economy has practically recovered. The earlier expectations for the automotive industry have been exceeded because of greater demand from the US, the EU and Asia. We are facing different challenges not directly related to COVID-19, including supply chain disruptions, delays in logistics and semiconductor shortages. Overall, we are happy with the recovery and the vaccination process in Mexico. Q: When should the industry expect a recovery from the chip shortage? A: The shortage will not be solved in the short term. Most chip suppliers have changed their production to cater to the needs of the entertainment industry by building chips for telephones, computers and TVs. There is nothing that can be done in the short term. While there are some initiatives to build new capacity, this will take time. Q: How does the investment landscape look in the state of San Luis Potosi and how is the cluster helping automotive companies? A: There are many new investments in the automotive industry. New companies are arriving to San Luis Potosi, such as those from

Marek Maister

Asia, and many other companies are expanding their production sites in the state, which is a favorite destination for investment in Mexico.

President of San Luis Potosi Automotive Cluster

For companies that are arriving, we facilitate communications with the government and with the local automotive industry. We also incorporate the new companies into our communities and address their needs regarding education. We create the appropriate educational training courses alongside local universities. We also

San Luis Potosi: Land of Opportunity

introduce them to the best practices, strengths and supply chain footprint in the state. Q: How is the cluster preparing to continue existing projects after the new state administration enters office? A: We are in close contact with the state governor and the Ministry of Economic Development and we hold meetings frequently to address any issue concerning the automotive industry. We expect to continue having the same good relationship with the new government. Once newly elected Gov. Ricardo Gallardo Cardona enters office, we hope to work with the new Minister of Economic Development, who is normally our main partner. The automotive industry and the state of San Luis Potosi are closely connected and there are many things we can achieve together. Q: How is the cluster supporting the introduction of Industry 4.0 manufacturing capabilities among its members? A: Industry 4.0 offers complete solutions for the industry, especially for the foodstuffs, electronics and automotive industries. Industry 4.0 is very important for our cluster, given

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that the automotive industry has readily incorporated highly computerized manufacturing processes, including big data and IIoT. The Industry 4.0 cluster has already reached out to us to create alliances and we are creating a committee to collaborate directly with it.

VIEW TOP Manufacturing Trends | 29

from the

Q: How is Michelin supporting the automotive industry in the race toward carbon neutrality? A: We contribute to the automotive sector in two ways. The first is through product development because the tire plays an important role in vehicle performance. With ICE vehicles, this development can support fuel savings, while in the case of EVs, it supports vehicle autonomy. It also helps to reduce CO2 emissions. Second is through product durability, with tires that last longer. Every industry and subsegment is trying to reduce the environmental impact of tire manufacturing. Q: How is Michelin implementing and enforcing sustainability practices in its operations in Mexico? A: We have two plants in Mexico but the newest facility, in Leon, Guanajuato, is still under construction. We invested heavily in providing both plants with green energy solutions and power alternatives. At our plant in Queretaro, we monitor our environmental impact and are constantly trying to reduce it. We also want to explore the community element of sustainability through projects in the surrounding communities for social development, which can also include initiatives like tire recycling. During the pandemic, we provided communities with the

Pierre Louis

materials they needed. We consider ourselves a 100 percent Mexican company, so this is part of our role in the community. Q: What are the particular needs of EVs when it comes

President and Executive Director of Michelin México

to tires and how is Michelin addressing them? A: The electrification of the vehicle park introduces technological challenges. At Michelin, we enjoy challenges. In the case of EVs, the challenges relate to torque and energy

Michelin Introduces Tires for EVs, Fleet Management Services

distribution. Tires influence battery life. Michelin has invested in researching these technologies for the past seven years, when we started to sponsor Formula E. Tires for Formula E are different than those for Formula 1 but they are very similar to those for electric vehicles. After seven years of technical development, we have reduced tire weight and energy consumption. This year, we introduced the Pilot Sport EV tire, which is the first tire specifically designed for EVs. This tire reflects our commitment to outstanding vehicle performance and driving comfort. We will start to manufacture this special tire in Leon and it will soon become a leading product in its segment. Q: What is the added value of Michelin Connected Fleets in the competitive leasing market? A: We are expanding our offering to fleet management and leasing through Michelin’s Fleet Management services, which improve the overall performance of fleets and their safety and security. In Mexico, the service is called Michelin Flotas Conectadas and offers telematics, cameras and sensors that allow companies to keep track of their fleet and improve its

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performance, which results in savings. We are advancing to a connected, integrated platform concept that can be combined with insurance or financial services. Michelin has been in the market for 30 years and we continue to introduce new products here.

VIEW TOP Manufacturing Trends | 30

from the

Q: How have plans for Yanfeng to expand its footprint in Mexico progressed? A: Our seat plant in Monterrey is fully operational. We also built a fifth plant in the northern region and we are ramping up operations in Saltillo. In a matter of 11 months, Yanfeng has built two new plants and we are planning to build an additional facility next year. The new plant will be focused on automotive interiors, specifically interiors for EVs. The new plant will allow Yanfeng to grow its footprint in EV manufacturing. Q: What components or raw materials is Yanfeng hoping to procure from its local supply chain? A: COVID-19 caused problems for many suppliers. The more we support the creation of regional suppliers of electronic components, which are now mainly sourced from Asia, plastic components, plastics and resins, the better for companies in the region. Most of our operations require plastics and textiles, such as leather and fabrics. Those are the materials we are looking for locally. Yanfeng has a team dedicated to the development of local suppliers alongside automakers. Also, we are working with our customers to relocate many of our suppliers in Asia and Europe to this part of the world. Nobody knows what will happen next,

Lourdes Cobos

whether climate change or a new pandemic will affect the industry, but the fact is that the closer suppliers are, the less affected the industry will be.

COO of Yanfeng Automotive Interiors Mexico

Q: What have been some achievements of Yanfeng’s tech center in Queretaro and what role does the center play within your operations in Mexico? A: Our center in Queretaro has proven beneficial, especially with

Yanfeng Builds Two New Plants Despite Pandemic, One More Coming

all the travel restrictions. The center helped us to provide rapid responses in design and to improve benefits for our customers by allowing us to offer technical support on processes. We are also proud to say that we have products that are being designed here in Mexico, alongside our customers, of course. That is remarkable because we used to rely on other countries for product development. We now have that opportunity closer to home. Q: What can Mexico do to strengthen its R&D and innovation capabilities? A: Often, companies arrive in Mexico and the first thing they demand is experienced professionals. But companies in Mexico should bet on young talent and coach them throughout their professional lives while developing their innovation skills. This is not a short-term strategy but one that will be fruitful in the medium and long term. Yanfeng followed this strategy and we now have 80 designers with an average age below 30 years old. Most of them joined us as trainees; they trained at different tech centers and returned to Mexico ready to innovate. These young professionals are

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committed to the company and proud to be part of its different projects. The more companies trust in young talent, the faster innovation capabilities can be developed. Four years ago, our technical center was a dream and now we are projecting aggressive growth.

VIEW TOP Manufacturing Trends | 31

from the

Q: Stant was one of the first automotive companies to settle in San Miguel de Allende. How has the landscape changed since your arrival? A: Stant was among the pioneer automotive companies in San Miguel de Allende and today there are more than 16 companies in the industrial complex. We have doubled our plant size and in the next six years we will have likely doubled our size again and launched more products. Our bet on San Miguel de Allende was part of a strategic decision to be close to our customers and to be part of Guanajuato’s automotive hub to strengthen our position in the Bajio. During the past year, the sector faced several global challenges, including semiconductor shortages and the pandemic. Thus, we need to innovate every day in our processes and products. Q: Stant recently announced project expansions amid the pandemic. How have these projects advanced? A: The expansions are part of our growth strategy. Our plant here is fully operational and to date, we have transferred 65 percent of our operations from the US to Mexico. We expect to complete the transition in August. We are investing considerably in this plant to bring new production lines that will support the local supply chain and maintain optimal production levels. That is our top priority.

Francisco Carreon

Q: Which opportunity areas has Stant found among its suppliers? What have been some successful supplier development strategies?

Plant Manager at Stant

A: We are always looking for strategic suppliers for plastic injection, metal stamping, fasteners and other metal components with special alloys, among other products. Our purchasing team is constantly looking for strategic partners able to supply us locally. We participate in supplier development and help our current

Opportunities Abound in EVs and ICE Vehicles

suppliers grow their business. Q: What are some of the elements Stant looks for to help suppliers scale their business? A: We look for companies that have already incorporated some automotive standards such as the IATF:16949 or at least ISO certifications. We then perform a wall-to-wall audit of their quality processes and other areas that add value to their work, while reviewing if they follow adequate controls to ensure the quality of the end product. We have helped suppliers with potential to scale up their businesses, get certifications and bring their products to other tier companies. We are actively looking for potential suppliers. Q: How does Stant innovate in engine components to increase vehicle efficiency? A: We work with better technologies and materials and on innovative systems that make the vehicle lighter. The lighter the vehicle, the better the performance. OEMs are looking for ways to increase vehicle performance per gallon to offer a better product

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with existing technology. Changing a platform abruptly can be costly for everyone. Electrification of manufacturing lines will eventually arrive but it will not be as disruptive as we may think. When we reach a balance between EV and ICE vehicle prices, things will start to change more rapidly.

VIEW TOP Manufacturing Trends | 32

from the

Q: GarantiPlus is a market leader in extended warranties in Spain. What led the company to expand into the Mexican market? A: GarantiPlus Mexico is the merger of two holding companies, one made up of Mexican entrepreneurs and the other encompassing Spanish companies. In 2015, when we started to do market research in Mexico, we realized that there was a great opportunity in the extended warranties market. We analyzed the company’s business model in Spain and we introduced it to Mexico in 2016. At that time, all warranties in the market were restricted to time and mileage, meaning that all companies offered warranties of one year or 15,000-20,000km. In Spain, the model considers unlimited mileage, so we decided to take this opportunity in Mexico. We were inspired to come to Mexico given the opportunity to take the limits off warranties, providing customers with more benefits and taking advantage of the growth opportunities in the Americas. When we arrived in the market, we went door-to-door, visiting distributors and companies to offer our product. Unlike our competitors, our initial core business was not to enter expansive alliances with OEMs or associations but to provide in-house training courses and advise dealers on how to offer the end customer extended warranties for their used vehicles. This is the main reason why this is the main

Israel Escutia

sector in our portfolio. Q: How is GarantiPLUS taking advantage of the industry’s slow but steady sales recovery?

CEO of GarantiPLUS México

A: Semiconductor shortages continue to have a negative influence on the sector, while the high availability of different models has created some challenges for dealerships. GarantiPLUS has introduced attractive products that

Opportunities for a Consolidated Extended Warranty Market

can help dealerships increase their profit margins. Some dealerships have numerous pre-owned or used vehicles in their inventory and we help them to sell these vehicles through different strategies or benefits for the customer. For example, dealerships can offer “small warranties” and other warranty upgrades to increase customer fidelity and boost their margins. Q: Recently you announced a partnership with Mercado Libre. What is the nature of the partnership? What other partners are key to GarantiPLUS? A: We have several partnerships with different groups and stakeholders. With Mercado Libre, we created a customized product on the platform that provides warranties for the seller of the vehicle. The next step will be to create warranties for buyers. We are also working with OLX Autos in Mexico, with plans to expand with that company throughout Latin America. GarantiPLUS is also talking with several players in the heavy-vehicle and insurance segments and with different automotive groups. Q: How has GarantiPLUS increased its presence in Latin America? A: GarantiPLUS Chile is already operating and disrupting the market hand-in-hand with some of our partner brands in

Mexico. In addition, we will soon open GarantiPLUS Colombia and we are looking forward to entering other markets in the region. Q: How is GarantiPLUS advancing in the heavy-vehicle market? A: Our warranties cover a variety of uses, from fleets to individual owners. We are advancing steadily in the heavy-vehicle segment as dealerships want to provide their customers with greater value. That is where we come in. Some of our clients in the heavy sector are trying new models to support their customers. We continue to test new solutions, such as warranties for Chinese-made trucks, and we continue to earn the trust of new segments. Q: How can both individuals (B2C) and businesses (B2B) take advantage of GarantiPlus’ broad warranty offering? A: We are still focused on B2B sales but we are transitioning to other markets. Since we joined the market in 2016, we have been focusing on dealerships, OEMs and financial institutions. However, we will start planning strategies to reach the end consumer directly. Our expectation is that by 2Q21, we will launch a technology-based initiative that will allow us to reach them so anyone can buy or offer an extended warranty for their vehicle. We will start with vehicles and then we will think about extending to motorbikes. Q: What are the opportunities electric and hybrid vehicles represent for extended warranties? A: Trends in the automotive industry suggest that customers will eventually shift toward hybrid and electric vehicles but a major challenge is the high price and unattractive financing schemes for these vehicles. Hybrid and electric vehicles have certain components that can be really expensive to replace or repair. Those elements should be considered under tailor-made warranties. GarantiPLUS México can tap the expertise of our Spanish counterpart and we currently offer warranties for electric and hybrid vehicles. We provide warranties for Hyundai or Toyota’s hybrid models in Mexico. This is a natural process considering that we will see greater demand for these products. We are among the few companies that provides warranties for vehicles powered by natural gas and in some cases, we even insure the conversion process to natural gas. This is key because any modification to the vehicle causes it to lose its original warranty.

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Manufacturing Trends | 34

Labor Complaints Under USMCA USMCA did not only introduce challenges in terms of tougher rules of origin for automotive goods; it also resulted in cohesive labor standards validated by Mexican reforms. Part of the process includes the new USMCA Rapid Response Labor Mechanism, which changes how employment issues are viewed and addressed in the region. “The changes in the new treaty focus on a concept that for most companies in Mexico is difficult. However, for those that have already experienced a trade union environment, it is easier: the democratization of labor relations,” says Luis Monsalvo. Not even a full year after the UMSCA came into effect, the mechanism was already being tested. In May 2021, US Trade Representative (USTR) Katherine Tai formally asked Mexico to review whether workers at a GM facility in Silao, Guanajuato, were being denied their labor rights, particularly those related to freedom of association and collective bargaining. The claim came after Mexican authorities ordered the General Motors union in Silao to repeat a worker vote. “Using USMCA to help protect freedom of association and collective bargaining rights in Mexico helps workers both at home and in Mexico, by stopping a race to the bottom. It also supports Mexico’s efforts to implement its recent labor law reforms,” said Tai during the announcement. US unions later presented to the USTR another complaint addressing an alleged denial of free association rights, this time of workers at Tridonex’s facilities in Matomoros, Tamaulipas. In this case, the American Federation of Labor and Congress of Industrial Organizations, the Service Employees International Union (SEIU), the National Industry and Service Workers’ Independent Union Chapter 20/32 (SNITIS) and Public Citizen filed the complaint under the USMCA mechanism. Luis Monsalvo, who was appointed as one of the panelists of the mechanism, says that the challenge of the labor reform for companies was “to move on to effective and true union representation.” “The law says that in a four-year-period, the collective relations between companies and unions should be legitimized through an election within the union. The rapid response labor mechanism ensures disputes can be settled in a matter of up to five months, unlike most general dispute settlement processes that can take more than a year. On Sept. 24, the US announced the conclusion of the labor complaint at the General Motors facility in Silao. “The action taken by the US and Mexico reflects our growing commitment to make trade work for workers. We will continue to collaborate closely with Mexico to strengthen the legitimization vote process and ensure workers in Mexico can access their rights to freedom of association and collective bargaining,” noted the USTR. As for the Tridonex case, labor organizations expect the outcome will set a precedent for labor complaints under the new standards set for manufacturing facilities under the new Mexican labor law and the era of USMCA labor standards. The sanctions to which Tridonex may be subject to are included in Annex 31-A, Art. 10 of USMCA. These “may include suspension of preferential tariff Read the complete article More about this topic

treatment for goods manufactured at the Covered Facility or the imposition of penalties on goods manufactured at or services provided by the Covered Facility.”

VIEW TOP Manufacturing Trends | 35

from the

Q: As the new Director General of the cluster, what are your strategies to continue the success of the industry? A: SLP Automotive Cluster is always open to collaborate with the state government and its agencies. We plan to align our strategies for companies to continue investing in the state. SLP provides talent, location, air and terrestrial infrastructure, rule of law and legal certainty to assure a smooth value transfer between talent, companies and investors. The cluster is celebrating its sixth year. We are consolidating and aligning the internal structures of our committees to generate viable projects to support the industry’s needs. We have also designed strategies to continue promoting the advantages the state offers the automotive sector. Q: One year after the USMCA, how has the treaty strengthened the state’s role in the sector? A: USMCA has resulted in many benefits for the automotive sector in general and to San Luis Potosi in particular. The new labor standards and the rules of origin that drive import substitution are some of the new benefits we have had under USMCA. The treaty will increase productivity and bring benefits to workers and their families. Legitimization of collective contracts — and unions — will allow workers to freely choose their union leaders, which

Luis González

will translate to better operations within manufacturing plants. USMCA also will continue to strengthen local supply chains, given the stipulated annual increase in Regional Value Content (RVC) for vehicles. This will bolster SMEs that supply Tier 1s and OEMs.

Director General of San Luis Potosi Automotive Cluster

Q: Labor affairs have resulted different challenges for the sector. How are the clusters’ members enforcing its norms? A: We are part of REDCAM (National Automotive Cluster

SLP Automotive Cluster Changes Vision, Director

Network) and have inked key partnerships with the Pan-American Development Foundation, INA and Partners of America to provide cluster members with sensitive information regarding the implementation of the labor reform. We also developed an executive education program to better train people in key positions within companies to support the applicability of the new standards. In some cases, we also help our members elaborate specific action plans to comply with the reform. With these strategies, we assure the reform will benefit workers and improve the sector. Q: In what key areas can automotive companies escalate their business? A: Companies need to assess their strengths and weaknesses, be aware of their competition, review prices and distribution channels and identify the added value that the company offers. With that assessment in mind, we can design a strategic plan to help companies strengthen their presence in the market or develop a new business line. Know your strengths, know your opportunity areas, know your competition and be aware of the added value.

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Our goal is to improve the quality of companies and ensure that existing companies meet the requirements of Tier 1s and OEMs. We do not only want to introduce more companies; we are focusing on strengthening the capabilities of the sector and we also have projects to develop SMEs.

VIEW TOP Manufacturing Trends | 36

from the

Q: How is Sonavox adapting to the post-pandemic world? A: The pandemic affected the industry as a whole and required a rapid adaptation process from the beginning. In Tlaxcala, the government provided proper guidance for companies in different sectors, prioritizing safety. Supply chain disruptions were also a challenge given that 85-90 percent of our supplies come from China. We do not use semiconductors but these are not the only products in short supply; plastic materials for example were also facing shortages. Our customer focus drove us to think ahead to avoid disrupting our customers. We have been fortunate as we have not experienced any production stoppages thanks to our proactive planning. Q: What are your thoughts on the new wave of investments arriving to the automotive industry? A: As transportation and logistics costs have increased due to the pandemic, bringing components from China is not the most viable option anymore. The pandemic drove a quick shift from globalization to regionalization. We will see more Chinese products manufactured in countries other than China, including Mexico, Canada and the US. After the semiconductor shortages, it has been said that new manufacturing facilities will emerge, but this will take time. Sonavox, as the first Chinese company in Tlaxcala, has hosted interested parties from China that have visited different

Florian Hanft

regions in Mexico to establish manufacturing sites. But Chinese companies face cultural challenges when they arrive to Mexico and need to embrace adaptability.

Plant Manager at Sonavox México

Q: How has the automotive industry grown in Tlaxcala over the past two years? A: The industry has flourished in the state. More companies have installed production facilities and the government has also

Sonavox Ramps Up Auto Parts Production in Tlaxcala

positively influenced the industry’s performance. CLAUZ has also played an important role in promoting the industry’s growth. All stakeholders have contributed to generate a promising scenario for the automotive sector in Tlaxcala. Q: Which components is Sonavox looking to source locally? A: Manufacturing a speaker requires between 15 and 20 individual components. We have sourced many supplies, such as adhesives and magnets, from abroad, mainly from China. In some cases, such as with magnets, components are really specialized so it is hard to find local suppliers. We have allied with one of our customers to that end. The major challenge is cost, given that the low volumes we purchase in Mexico at the moment make economies of scale unfeasible for local suppliers. However, we will continue to look for local suppliers because transportation costs have climbed 250 to 300% for a Container within the pandemic. from US$4,000 before the pandemic to US$12,000 now. Q: How are new environmental standards set by the industry influencing your operations?

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A: We have the IATF:16959 certification and this year we will acquire the ISO:14001 for environmental standards and also the ISO:45001 certification for safety and health. All of these certifications are necessary to define internal processes and to meet our clients’ and our internal needs.

Conference

Manufacturing Trends | 37

Highlights

Heavy Vehicles and the Road to Sustainability Miguel Elizalde Executive President of ANPACT

Raúl Rodríguez Business Transformation Solutions Director of Scania México

Gilberto Ramírez Director of Strategic Planning and Business Development at Volvo Group Mexico

Jesus Gómez Director of Market Development and Product Portfolio at Daimler Trucks México

ransportation is one of the largest sources of greenhouse gas emissions in Mexico. The path toward greener vehicles is already set but getting there relies on a multistakeholder approach, according to OEMs. Mexican authorities are changing

regulations to address greenhouse gas emissions and provide cleaner transportation. NOM-044-SEMARNAT, for example, regulates vehicle efficiency and greener fuel consumption using technologies such as EPA 10 and EURO 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 ultra-low-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,” says Miguel Elizalde, President of ANPACT, 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 has made important advances on BEVs and FCEVs with powertrain solutions,” says Jesús Gómez, Director of Market Development and Product Portfolio at Daimler Trucks Mexico. “In the meantime, we continue to reduce our energy and water consumption to reduce our carbon footprint in all our business units.” 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 we are acting proactively to find a solution. We have different technologies available for different markets that include vehicles powered by hydrogen, ethanol, biogas, LP gas, natural gas and electricity. We are aware we are living in a period of transition, in which technologies will last longer,” says Raúl Rodríguez, Business Transformation Solutions Director of Scania México. 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 Paris Agreement by 2050. “This is the greatest challenge of our generation but sustainable transportation

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solutions are essential for a society to thrive,” says Gilberto Ramírez, Director of Strategic Planning and Business Development at Volvo Group Mexico.

Light Vehicle Production Results

3.39

1.82

2.93

2017

1.82

2.26

2.0

2.56

2.5

2.88

3.0

3.22

3.5

3.46

3.93

4.0

3.81

SHARE BY SEGMENT TRENDS

3.92

MEXICAN LIGHT-VEHICLE PRODUCTION (million units)

1.5

2018

1.0

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

0.5

2010

Manufacturing Trends | 38

Infographic

The lowest point in light-vehicle production was in April 2020 with only 3,722 units and the peak was in March 2017 with 371,447 units

2019

LIGHT-VEHICLE PRODUCTION BY BRAND 2010 - JUL 2021 (thousand units) 4

2020

3.5 3 2.5 2

2021

1.5 1 0.5 0

2010

2011

— Nissan — GM — Volkswagen Source: INEGI

2012

2013

— Chrysler — Ford — Honda

2014

2015

— Toyota — Fiat — Mazda

2016

2017

2018

2019

2020

2021

— Mercedes-Benz — JAC — KIA — BMW Group — Audi

Compact SUV Pickup Subcompact Luxury

VIEW TOP Manufacturing Trends | 39

from the

Q: What is KPMG’s assessment of the disruption to supply chain and their ability to recover? A: The pandemic caused a significant disruption to global supply chains, mainly affecting the primary suppliers of many manufacturing sectors, including the automotive industry. This led to some shortages. While demand for many products dropped, the speed at which shortages occurred outpaced the drop in demand, resulting in a reduction in inventories. Most sectors secure inventories for three to five months but drastic shortages caused manufacturers to run through their inventories and eventually halt production. Some had to find alternative sources, which is also closely related to price fluctuations. After the peak of the pandemic passed, companies quickly adapted to resume operations as quickly as possible in a safe environment. When companies resumed operations, they were aware they would have to undergo a continuous adaptation process influenced by the pandemic. This was an iterative process that evolved daily to mitigate risks, both to finances and health. An iterative focus allows companies to provide a quick response and keep supply chain disruptions to a minimum. There were no critical shortages in primary sectors. The automotive sector did suffer some impacts because it has

José Ruiz

a complex value chain. The recovery of basic processing of raw materials also has been slow. In some cases, some elements critical to the value chain were not labeled as essential, causing bottlenecks.

Partner for Supply Chain Operations at KPMG

Q: How are regionalization and nearshoring trends being affected by the supply chain impact? A: The pandemic made clear that globalized supply chains are

Supply Chains Are Transforming

vulnerable. By placing all elements in just one basket, or one region, globalization can diminish the degrees of freedom of the supply chain. Companies are now focusing on their local footprint rather than relying fully on globalization. Companies are balancing their supplies, moving from a high global dependence to a more balanced mix of supplies between global and local. Supply chains cannot be fully local either, as costs remain an issue. Producers in Asia will continue to manufacture larger volumes at reduced costs. The name of the game is to identify the right balance between global and local. Each supply chain is quite different in this regard and every organization should address this question on a case-bycase basis. The transformation toward balancing supplies is going slowly. Many organizations are exploring their options for local sourcing or considering landing operations in Mexico, given that the country could be the entry door to the US within the USMCA framework. Companies from plastics to metals are already assessing projects to establish operations in Mexico and looking for local suppliers. They are now in the evaluation stage and a ramp-up of new sites in the country is likely to occur within the next two years. Q: How have supply chains in Mexico advanced to greater degrees of digitalization?

A: The pandemic also made evident the reliance of manufacturing companies on direct manual labor, which can create vulnerabilities. Even before the pandemic, Mexico’s large industrial regions, such as the Bajio, State of Mexico and Nuevo Leon, competed ferociously for talent. This led to high turnover rates and drove organizations to consider digitalization strategies more seriously. When the pandemic arrived, the need for digitalizing and automating processes became even more evident. As companies started to look for solutions, they realized that digitalization and automation solutions were not as expensive as they thought. On the one hand, technology became more accessible with attractive ROIs. On the other, the need for digitalization and automation grew with the pandemic. With many of our clients, we make business cases or provide evaluations to assess digitalization strategies for their business models. Within two years, similar to the arrival of new sites, degrees of digitalization will increase considerably. There are also specific methodologies, such as the agile methodology or scrum, that allow companies to iterate new solutions to innovate and generate results within weeks. This is different from traditional digitalization and automation projects. Company leaders are realizing how accessible it is to set digitalization strategies into motion. Q: What is the potential of 5G for manufacturing operations? A: 5G is a platform that could enhance manufacturing operations, with the possibility of provide real-time visibility and the ability to make decisions faster. 5G networks will increase speed in an environment where agility is the name of the game. Today the organizations are not competing anymore based on their size (large vs small); if a startup is fast enough, it will overcome a large organization quickly. In terms of manufacturing operations, 5G and collaborative robots, or “co-bots,” could be a winning formula as the data coming from the co-bots could be provided in real time, leading to better quality, safety and efficiency. Q: How is the OEM focus on carbon neutrality influencing the supply chain? A: Sustainability has become considerably important in different sectors as power supplies have become more affordable. The cleaner the energy, the better. Carbon neutrality has been widely adopted and for many companies this is a matter of efficiency. Businesses are analyzing how to make their operations more efficient, more precise and smarter by using their resources better. This could help reduce carbon footprints considerably.

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from the

Q: What progress has been made in the country’s mobility regulations? A: The official decree published on Dec. 18, 2020 reforms Article 4 of the Mexican Constitution to state that, “all people have the right to mobility on safe roads in conditions of accessibility, efficiency, sustainability, quality and equality.” Industry standards regarding mobility and road safety, such as Mexican NOMs or NMX, should aim to comply with this reform. All laws involving transit regulations at local or municipal levels will need to follow the constitutional mobility guidelines. Q: What are Haldex’ newest innovations in braking systems? A: Haldex wants to build a world of safer vehicles through improved braking and drivetrain systems. That is our mission and it drives us toward new developments and innovations that result in safer vehicles. New developments include our electromechanical braking systems, which are already being used by electric buses. Other solutions include an air braking systems that generate pressure in the compressor to activate the braking system. Braking systems in electric vehicles need to be more efficient to avoid using up battery power unnecessarily. This is where Haldex’s electromechanical braking systems come into play. When the braking system is activated using a rheostat, it improves efficiency.

Eugenio Bergeyre

We have also made advancements in drivetrains. One of our braking systems assists the vehicle’s drivetrain through a series of sensors that detect if the driver requires more force while taking a curve. The system can also fully assist the driver in what is called

Business Manager of Haldex Mexico

brake driving. For example, part of the system can brake slightly on one side and then on the other to correct the vehicle’s trajectory. We are also developing fully autonomous heavy vehicles. ITCM systems, which are developed 100 percent by Haldex, help telematic systems to monitor the vehicle’s tires, refrigeration

Innovative Brakes a Key Element for Safer Mobility

sensors and many other aspects. Q: How is Haldex helping to develop local suppliers? A: Haldex’s production is highly complex. Our facilities encompass four manufacturing plants in one site. For disc braking systems and automatic adjustors, we have a great pool of forging suppliers. We balance our supplies with others from the US and Canada but we bet on our Mexican partners. Suppliers must be prepared to avoid disruptions given our large production volume that supplies virtually all heavy OEMs and the aftermarket in the country. Q: What are the strengths and challenges regarding Haldex’s supply chain? A: Plastic injection, painting, coating and packaging suppliers are strong in the region. Most are subsidiaries of our suppliers in the US. At Haldex, we also develop local suppliers but aluminum comes mainly from China. In terms of challenges, we have faced problems in the production of ABS braking systems, which perform well in Mexico and Brazil,

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due to the chip shortages. Anti-rollover system production also requires chips. The smart trailer model requires Power-LineCarrier (PLC) communication to transmit information. Due to these challenges, we have not made our final forecasts for this market yet.

Manufacturing Trends | 42

How Is the Supply Chain Adapting to Higher Sustainability Standards?

The race toward carbon neutrality across the upstream supply chain is accelerating. OEMs and Tier 1s are ensuring sustainable practices not only at their facilities but at the suppliers’ facilities too. Leaders from the sector share their approach to higher environmental standards.

We have two plants in Mexico but the newest facility, in Leon, Guanajuato, is still under construction. We invested heavily in providing both plants with green energy solutions and power alternatives. At our plant in Queretaro, we monitor our environmental impact and are constantly trying to reduce it. We also want to explore the community element of sustainability through projects in the surrounding communities for social development, which can also include initiatives like tire recycling.

Pierre Louis Dubourdeau President and Executive Director México of Michelin

This year, we will acquire the ISO:14001 for environmental standards and also the ISO:45001 certification for safety and health. All of these certifications are necessary to define internal processes and to meet our clients’ and our internal needs. We also want to make our operations more sustainable and diminish our environmental impact. When it comes to environmental standards, it is not only that we need to do it but that we want to do it. Embracing environmental standards in a compact environment such as Tlaxcala also sets an example for society as a whole.

Florian Hanft Plant Manager at Sonavox México

Sustainability has become considerably important in different sectors as power supplies have become more affordable. The cleaner the energy, the better. Carbon neutrality has been widely adopted and for many companies this is a matter of efficiency. Businesses are analyzing how to make their operations more efficient, more precise and smarter by using their resources better. This could help reduce carbon footprints considerably.

José Ruiz Partner for Supply Chain Operations at KPMG

Fronterview’s Outlook on the Mexican Automotive Industry 05/07/2021

Why Is GM Investing US$1 Billion in Mexico? 05/04/2021

Guanajuato Continues to Attract New Investments 05/06/2021

SITECH: Brose Group and Volkswagen AG’s New Venture 04/20/2021

Bosch to Invest US$100 Million in Mexico 05/10/2021

Aguascalientes Grabs Important Investments in the Auto Sector 05/13/2021

DANA to Invest US$40 Million in Nuevo Leon 07/12/2021

Audi Continues Its Commitment to Sustainability 06/10/2021

Nuevo Leon Incoming Governor to Focus on Industry Development 08/17/2021

Puebla to Invest in Automotive Industry 08/06/2021

Applicability of USMCA Rules of Origin Raise Controversies 07/29/2021

Material Technology Lighter, safer and more efficient are the principles behind material technology innovation. The lightweighting race continues as chemical and coating companies work alongside Tier 1s and OEMs to reduce the weight of auto parts and increase overall vehicle efficiency. For traditional internal combustion engine (ICE) and electrified models, a lighter vehicle means a smaller carbon footprint. Chemical and coating companies are also pressing the accelerator on the innovations necessary for the incoming production of electrified cars. Additive manufacturing is also transforming material technology. New resins and materials provide 3D-printed parts with the performance expected in auto parts components. Amid logistics constraints and higher prices to bring parts from Asia, companies across the chain are exploring additive manufacturing solutions to print their components locally.

Material Technology

Analysis The Race Toward Lightweighting

View From the Top Juan José Zaragoza | President Mexico and Latin America of DuPont

View From the Top Adriana Macouzet | President and Director General of PPG Industries

View From the Top Saulo Guzmán | General Manager of Wieland Metal Services Queretaro

View From the Top Gerardo Angulo | General Manager of Timken de México

View From the Top José Pin | Head of Automotive and Aerospace Divisions Latin America for 3M

Analysis Additive Manufacturing: The New Frontier

View From the Top Felipe Villareal | CEO of Alian Plastics

View From the Top Arturo Molina | Managing Director Mexico of Covestro

Conference Highlights Material Technology Must Keep Up With Industry Needs

View From the Top Martin Toscano | President and General Manager of Evonik Industries de México

View From the Top Sebastián Romo | CEO of Tridi

Roundtable How Is Material Technology Supporting Vehicle Lightweighting?

Content Links

Material Technology | 47

The Race Toward Lightweighting The US Environmental Protection Agency reported that in 2018 the average car weighed 1.85 tons, of which 55 percent was cast iron and steel, 11 percent was plastic, 9 percent aluminum alloys, 7 percent rubber, 3 percent glass, 1 percent non-ferrous alloys and 14 percent other materials. While this has not changed that much since 1975, the focus on weight reduction has long been prevalent in the industry. “The key to improving fuel economy is weight reduction: the smaller a vehicle is, the less power it requires to accelerate and the less energy to maintain a fixed speed,” wrote Frank Field and Joel Clark for MIT Technology Review in 1997. For decades, steel and metal alloys were materials of choice for the body of the vehicle. To replace steel, materials must deliver high strength, energy intensity or the ability to absorb impact, manufacturability, minimum weight, corrosion resistance and maintainability, according to the paper, “Modern materials for automotive industry,” published by Havorun et al in the Journal of Engineering Sciences. MIT researchers point out that the vehicle’s body only accounts for approximately one-third of the vehicle’s weight. However, “for every 10 pounds saved by reducing the weight of the body, another 10 pounds can be saved by downsizing other parts of the car.” There have been key developments in alternative materials that meet the necessary conditions to replace steel. Aluminum car bodies have already reached mass production, although only for expensive models. “Thanks to aluminum, the car gets lighter, which increases speed and reduces CO2 and fuel consumption” said Havorun et al. Aluminum can weigh up to 30 percent less than cast iron. Some aluminum alloys include materials like titanium and vanadium (TiAl3 and VAl6), further enhancing its characteristics and reducing weight. Another relevant material pushing lightweighting forward is carbon fiber. This material is particularly important for electric vehicles. Given the high cost of carbon fiber, however, it is currently used only in light sports vehicles, including Mexico’s VUHL. “ETXE Diseño, which is our engineering consulting firm founded in 2007, and Adman Leku, an advanced manufacturing company founded in 2013 and focused on carbon fiber components and complex sub-assemblies, work for VUHL and represent between 25 and 30 percent of our portfolio, respectively,” says Guillermo Echeverría, Co-Founder of VUHL. Vehicles are becoming increasingly complex and leightweighting involves vehicle components, adhesives and coatings. OEMs have set ambitious sustainability goals, which involve more efficient and electrified vehicles. Consequently, the supply chain is also adapting. Chemical giants like DuPont have continuously supported OEMs and Tier 1s’ lightweighting goals. “Lightweighting, sustainability and comfort remain macro trends for combustion, hybrid and electric cars. We have a special program called AHEAD™ (Accelerating Hybrid-Electric Autonomous Driving) to address these challenges. Today, 30 percent of our global profit comes from AHEAD technology developments. This rate is similar Read the complete article More about this topic

in Mexico, since every vehicle in the US carries at least one auto part produced in Mexico,” says Juan José Zaragoza, President Mexico and Latin America of DuPont.

VIEW TOP Material Technology | 48

from the

Q: What role does sustainability play in DuPont’s strategies? A: Dupont’s Mobility and Materials Division, Dupont’s largest in Latin America, has significant influence in the automotive sector, which represents 75 percent of our sales. We collaborate with Tier 1s, Tier 2s and OEMs to find sustainable solutions and work toward the future of mobility, such as autonomous and electric vehicles. Q: How has DuPont advanced in its AHEAD technology? A: Accelerating Hybrid, Electric and Autonomous Driving (AHEAD) continues to be an important strategy for us. About 40-45 percent of our sales in the mobility and materials segment come from advanced mobility products, namely electric and autonomous vehicles, and we have been working on technologies that will help us meet our sustainability goals. But our goals for traditional ICE vehicles and advanced mobility vehicles remain the same. Latin America’s automotive sector is quite different from more developed markets. We do see a transition toward advanced mobility but it has been slower. In Mexico, several OEMs are embracing global manufacturing practices and some are already producing electric vehicles in the country. Q: OEMs have introduced aggressive electrification plans. How does DuPont support OEM efforts in this regard?

Juan José Zaragoza

A: DuPont’s different business lines allow us to be a Tier 1, Tier 2 or Tier 3, depending on the component. New technologies in the automotive sector require more resistant materials to weather

President Mexico and Latin America of DuPont

different conditions. Temperature resistance in traditional and advanced mobility is a critical component. We also work alongside OEMs and Tier 1s to design auto parts and systems that meet specific requirements. For example, an ICE

Sustainable Materials, Technology: Keys to Future Mobility

vehicle requires between 50 and 100 sensors but an autonomous vehicle requires over 1,000 sensors. We support efforts to develop technologies that can detect certain elements in the environment. We have helped OEMs and Tier 1s develop applications that foster lightweighting and vehicle downsizing. Q: How has the USMCA treaty influenced your strategies? A: DuPont’s strategy did not shift dramatically because of the USMCA thanks to our strong global footprint. Our presence in the Americas remains strong and our goal is to consolidate our footprint as part of the North American region. That being said, the market has changed. The trend today is toward regionalization. OEMs and Tier 1s want their suppliers to be closer to consumer markets. Delivery times are being shortened and, given Mexico’s location, USMCA becomes a unique opportunity for the country to regain its position as the major trade partner for the US. Q: The sector transformed more in the past 12 months than in almost 100 years. What is your perspective on this? A: The industry has adapted rapidly, according to the circumstances

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we are living in. Long-term planning did change: it now involves thinking one month ahead. Change is the only constant. Planning has been really short-term oriented as the industry must adapt rapidly, not only because of supply shortages but also because of ongoing transnational logistics.

VIEW TOP Material Technology | 49

from the

Q: What role does the automotive sector play for PPG in Mexico and how has the pandemic influenced your local operations? A: The automotive sector is a key area for PPG. We ramped up operations in Mexico to support the growth of the OEM’s in the country. The sector is our backbone and I am glad to say that PPG also plays a fundamental role in boosting the automotive sector in the country through technology transfer that ensures the vehicles manufactured in the country are equal or superior in quality to those produced in other North American plants. One figure that highlights the importance of the coatings in vehicle manufacturing is for instance when an OEM decides to set up a new plant in a new location, approximately 40 percent of the capital investment goes to the paint shop. These areas have paint booths that are not only automated but also isolated, which demands special temperature, humidity and ventilation conditions. Given the size of the investment, OEMs are very selective regarding their paint and coating supplier. Q: How is PPG innovating and adapting to the electric vehicle revolution? A: The key element in EVs is the battery and the industry is working to make batteries more efficient, lighter and cheaper. At PPG, we think about what a battery is and what is happening inside. The

Adriana Macouzet

battery requires different layers of protection and that is where coatings come into play. Batteries require dielectric insulation and thermic coatings given heat risks, and corrosion protection, among others. Coatings play an important role in this regard because the

President and Director General of PPG Industries

EV battery is a combination of various cells and each of these parts require their own coating. We help make batteries safer for the vehicle at a reduced cost and lower weight. Q: What is the role of sustainability for PPG and how do you

Innovative Coatings Support Sustainability, CostEfficiency Goals

support your customers in reducing their carbon footprint? A: Our product innovation has also led us to create paints that can be baked at lower temperatures, reducing the amount of fuel needed to heat the ovens. Paint applications have also been innovated. Traditionally, the painting process is done in four stages; we developed compact coatings technologies that reduce the environmental impact, while also significantly reducing the investment required to install and operate the paint shop. Q: How are PPG’s innovation centers supporting automotive trends? How is Mexico contributing to PPG’s innovation goals? A: Coating plays an important role in the development of autonomous vehicles. We have studied which colors are better recognized by vehicle sensors. We also study how coatings better enable communication through the vehicle’s sensors and other aspects relevant to boosting vehicle automation and electrification without compromising the aesthetics of the vehicle. Q: What are the most recent products introduced by PPG to the Mexican market?

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A: We are introducing our compact process technologies that reduce the number of layers in the paint system by eliminating one layer. This allows companies to simplify the application process and eliminate one production oven.

VIEW TOP Material Technology | 50

from the

Q: As an expert in copper products, how has Wieland increased its footprint in the automotive sector? A: It is a very important sector for us. When OEMs started to incorporate more electronic components into their vehicles, our role in the sector grew. We supply the metal to our customers for electric components such as connectors, fuses and other conductors. During the past three years, companies have arrived in Mexico to invest in local stamping companies to manufacture the precise and complex components that used to be produced in Asia, the EU or the US. We see Mexico as a global platform, especially as more suppliers arrive. Copper is required for different parts of the vehicle. Cooper for automotive sector represent almost 50 percent of our sales volume in Queretaro from what used to be 25 percent three or four years ago. Q: How are electrified vehicles influencing copper demand? A: Cooper started to gain importance as electrification trends accelerated. One of our most important customers has already assigned us a project to supply the copper that will end up in automobile chargers. The industry is heading to an interesting place. OEMs are

Saulo Guzmán

setting ambitious electrification goals for the next five to 10 years and expect 25-50 percent of their sales to come from electrified vehicles. The amount of copper that will be used will increase considerably from ICE vehicles to electric

General Manager of Wieland Metal Services Queretaro

vehicles. An ICE vehicle uses about 20 Kgs of copper, while an electric vehicle uses between 70 Kg and 83 Kgs, four times more. This is influencing demand for copper and growth projections are high. At Wieland we remain proactive in this regard to support the sector. That being said, projections

Copper Demand Likely to Increase Due to EVs

regarding copper extraction indicate that at this rate it is not likely to be sustainable within two decades. Q: How are sustainability goals being taken into account when considering the exponential growth in copper demand for the automotive industry? A: The world will experience a supply constraint of copper but the way to approach this problem is through investments in exploration and mines or in alternative operations like recycling, since copper is highly recyclable. Companies should also invest in processing capabilities, considering the market’s increasing consumer trends. Q: How does Wieland address lightweighting to support automotive suppliers? A: Wieland continuously innovates and designs new alloys that will allow our clients to meet their specific needs, whether those are increasing conductivity or reducing weight. Wieland has a variety of patents in the market.

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As a company, we are constantly innovating and open to work with strategic partners to develop new products. We also produce really thin, millimetrically-exact materials with special properties and we help our customers to reduce not only weight but also costs.

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Q: How has the evolution of vehicle powertrains accelerated and what has been the impact on bearing technology? A: Today’s standard platforms are evolving in line with the increased power demands of vehicles. Most of the work is being done on fuel-efficient vehicles and EVs. Many of our technology centers are working with General Motors, Ford, Volkswagen and Toyota on the next generation of EVs. Timken is present in all vehicle ranges, although our strongest markets are SUVs, crossovers and heavy-duty vehicles. We do not have as many applications for light vehicles because of the type of bearings they use. Q: Taking into account lightweighting trends, how have material requirements for components such as bearings changed and how is Timken adapting? A: Since the company was founded, Timken has produced its own steel. In 2014, we split into Timken Steel and Timken, the latter focusing on bearings and power transmission equipment. Our background has always been in high-strength, clean alloys and steels. This has been key to the durability and efficiency of our products. Our steel area has always been paramount to the business and now, although not all steel is manufactured by us, suppliers follow the guidelines we set.

Gerardo Angulo

The benefit new steels bring to the market is that they can withstand more load, meaning vehicles can incorporate smaller bearings. This helps manufacturers produce significantly smaller products and the end result is a vehicle with less weight.

General Manager of Timken de México

Sometimes it is not just the steel that adds weight but the internal components, such as finishes. We have special finishes that, with proper lubrication, reduces wear makes the product more efficient. Timken uses carburizing treatments in critical operations, such as those involving high-tensile forces.

New Bearing Plant to Build a Stronger Foothold in Mexico

Q: What opportunity areas would you highlight for sourcing raw materials from Mexico? A: We have not found a supplier in Mexico that can offer the consistency and quality we need. Traditionally, we have always brought steel from Japan, the EU or the US. Now, we are opening a plant in Mexico and for the moment we are using the same supply chain we have for other plants. However, we are looking for new suppliers. One of Mexico’s main problems is the lack of forgers. Even if the steel is good, without forgers, it is difficult to complete the supply chain locally. Q: How will Timken’s new plant in Mexico help strengthen its North American footprint? A: The new plant has already started production, with over three lines. We expect to have three more lines up and running in the next two or three months. This plant is of great importance to strengthening our footprint in North America with a further costefficient operation. Like other plants in Romania, India or China, this facility will help us to be more competitive in markets that we

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have neglected due to cost issues. Now that demand for bearings is high globally, this plant will help us offset the capacity of our other plants. Moreover, given the constant delays on sea and air routes, some of the production we had in India and other plants in Eastern Europe will be transferred to Mexico.

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Q: How is 3M helping OEMs achieve their ambitious carbon neutrality goals? A: 3M has a solid sustainability foundation. The company is now focusing on three priority areas regarding sustainability. The first is “science for circular” as all our solutions are focused on doing more with less, obtaining better performance and improving material technology, which contributes to a global circular economy. All our new products follow our sustainability commitment. The second area is “science for climate,” in which we develop innovations toward decarbonizing industries and look for solutions to reduce our own carbon footprint. For example, our corporate offices in Minnesota are fully powered by renewable energies. Around 50 percent of our global operations will be powered by renewable energies by 2025. The third area is using science to contribute to communities as all of our efforts focus on creating a better world. Through science, we aim to improve quality of life. For example, we support STEM education for everyone. Q: How is the company adapting to the electrification of the automotive sector? A: Electrification and autonomous vehicles are among the biggest trends in the automotive sector. 3M has been working in electrification since 2018, when we created a specialized group to coordinate transversal efforts to address our clients’ needs.

José Pin

That specialized team and our technological capabilities allowed us to introduce thermal management solutions, electric isolation products and materials for battery cells. Various solutions are now available to the market and many companies worldwide are

Head of Automotive and Aerospace Divisions Latin America for 3M

already testing them. Within the electrification megatrend, there are different subtrends that must be addressed, including vehicle performance, the total cost of the systems, economics of scale, charging, battery autonomy, safety and comfort.

Deploying Material Solutions for a Sustainable Future

Q: How do 3M’s solutions differ between ICE vehicles and EV? A: Despite the speed of the electrification trend, economies of scale will take time. Our traditional portfolio for ICE vehicles also works for EVs. We are a material science company, so component assembly, adhesives, material links and lightweight continue to be priorities. Our portfolio remains current and helpful to both types of vehicles but we are also considering how to expand our product portfolio to address the specific needs of EVs. Electrification is so important to the sector that all of our divisions are looking for new solutions. Some solutions developed for the mining industry can also be applied to the auto sector, which is why the multifaceted nature of our company helps us to better support the needs of our customers. Q: How are 3M’s R&D center in San Luis Potosi and the Customer Innovation Center in Santa Fe helping the company achieve its goals? A: These are spaces designed to promote collaboration between the company and its customers. We hold workshops with our clients to better understand their challenges and show them our wide variety of products to come to a solution together. When we communicate how our products work,

clients make quick associations to identify how a product fits their needs. The R&D center in San Luis Potosi works closely with other centers around the world. That closeness promotes global coordination to continue developing our capabilities. The center in San Luis Potosi does not focus exclusively on the automotive sector but the developments there can be used in other markets. Our global footprint allows us to be really close to our clients in all markets where they are designing vehicles. Our proximity to our clients is essential to understand their challenges and anticipate their needs. This is central to our innovation processes because there is no point in developing products without potential application. Q: What is your perspective on additive manufacturing and other material science innovations? A: The industry is evolving. The end-customer is putting pressure on OEMs to bring innovative solutions to the market. As a material science company, 3M can provide a broad portfolio of solutions. Many of our technological capabilities focus on our own manufacturing processes, which allows us to test new materials, automated manufacturing and other trends. We invest about 6 percent of our global sales in R&D. Our existing technological capabilities open an infinite number of possibilities. It is not just about investment but about exploring new technologies and materials and making them relevant to the market. Q: What role will the Mexican market play in material innovation? A: The Mexican market depends on the US market, particularly in industries like automotive and aerospace. Most companies consider Mexico as part of North America and not only in a geographic sense. In markets where global companies converge, the best strategy is global collaboration through close and open communication between markets. The big push for electric vehicles is taking place in China, the US, Germany and Japan. Thus, we need to remain close to our teams to be aware of what is happening. This allows us to be aware of what models are coming years in advance and to support manufacturers in regard to logistics, components, material technology and other elements. The Mexican market also faces its own challenges and provides insights and testing sites for upcoming products that will later be used in other markets. The challenge is to create a product that fulfills our customers’ needs globally while understanding the particularities of each market.

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Material Technology | 54

Additive Manufacturing: The New Frontier Around 10 percent of today’s manufacturing processes are expected to be replaced by additive manufacturing by 2030. Although market research firm CONTEXT reports a decline in industrial 3D printers’ shipment revenues of 21 percent to around US$1.2 billion, the firm has bullish expectations for 2021. Consulting firm McKinsey also estimates that the technology is halfway to its mass adoption across different sectors, automotive included. “This technology would be most beneficial for companies in the heavy-vehicle markets that work with small production volumes, substituting molds for direct manufacturing especially in rapidly changing or highly customable environments,” says Sebastián Romo, CEO of Tridi, a Mexican 3D printing manufacturing company. For Matt Myrand, Group Advanced Manufacturing and Supply Chain Manager at Faurecia, there is hope that 3D printing can evolve past its current niche condition. “As speed and quality increase, the technology is getting there,” he said. Some of the cons that have prevented additive manufacturing solutions from reaching the mass market are the quality of materials and the high-cost of the additive manufactured components. Material quality is key in additive manufacturing processes to ensure component performance and some companies have specifically focused on addressing the opportunity areas that raw materials offer. There are several initiatives among Tier 1s and OEMs to further the adoption of additive manufacturing in automotive applications. 3D Systems, the oldest additive manufacturing company in the US, recently introduced Accura AMX Rigid Black, a resin that will facilitate the manufacturing of large, structural, load-bearing parts for a variety of markets including automotive. This material was product of a partnership with Toyota Gazoo Racing (TGR), the racing branch of the world’s largest automaker by volume. “Accura AMX Rigid Black allows us to deliver larger, complex SLA production parts, including full-scale manufacturing aids. We recently used the material to develop 3D printed fixtures for stabilizing larger automotive components for CNC milling,” said Alexander Liebold, Group Leader of Production Engineering and Future Technologies at TGR, in a statement. The two largest Tier 1 automotive suppliers in the world by revenue in 2019 are also investing and acquiring companies and projects dedicated to scale additive manufacturing solutions. Bosch has a subsidiary specially committed to this type of process: Bosch Industrial Additive Manufacturing, which focuses solely on plastic parts. “With our unique technology, we are able to produce small series of industrial plastic parts with injection molding quality. By combining the benefits of both technologies, 3D printing and injection molding, we reduce development time and costs. Denso, meanwhile, has also accelerated its ventures in additive manufacturing capabilities. In June 2021, the company announced a “heavy” investment in Seurat Technologies of Massachusetts. “Seurat’s printing technology is a breakthrough, one that dramatically accelerates additive manufacturing production rates. Read the complete article More about this topic

We look forward to helping them develop it further,” said Raja Shembekar, Vice President of Denso’s North America Production Innovation Center, in a company statement.

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from the

Q: How did Alian Plastics weather the pandemic in 2020? A: Last year, the world stopped between March and May amid the pandemic. Thanks to our diversification strategy started two years ago, we saw our HVAC and toys segments carry on while automotive was slowing down. After July, the automotive sector came back even stronger. In fact, we gained two new projects during the pandemic, with BMW and Tesla. Q: What new technologies in the plastic injection sector are helping your business? A: We recently invested in new machinery related to the recent projects we won. Plastic injection companies use the same brands and technologies; the difference is in the peripheral equipment. A plastic injection machine with an additional robot or robot end-arm can boost productivity levels considerably. Those end-arms are custom-made for specific processes. Another promising technology is automated storage and supply for the machines, where tubes and automated infrastructure deliver resins to the machines automatically. Today, the process is done manually. That is a technology worth exploring. More technologies and robots will continue to be incorporated into manufacturing lines. However, those robots and

Felipe Villareal

technologies will not displace human capital. We are all looking forward to increasing profitability but not at the expense of the human element. In plastic injection, the expertise that employees acquire is impressive, from molds to maintenance. If we focus on

CEO of Alian Plastics

people, it will eventually lead to profitability. Our motto is that, “We take care of our people, so they take care of their people.” Q: How has the company used data analytics and new technologies to streamline its processes?

Boosting Production Through Industry 4.0

A: We have an Industry 4.0 platform that sends alerts every time a machine stops and provides the reason why, whether it is a matter of quality, production, maintenance or another factor. Those automatic alerts help us to react faster and take actions toward our common goal to continue improving as a company. Every month we analyze all machines and areas that were affected by stoppages to determine the five most problematic and address them. We have seen major improvement through this process. We also have a variety of dashboards that were developed internally to process all of our information. Through these dashboards, we can merge all major KPIs into a single scorecard within our quality system, IATF:16949, and visualize the information on a mobile or desktop app. Q: What are your near-term priorities? A: Last year was excellent for us in terms of deliveries and quality from an operational perspective. Our goal for this year

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is to surpass those results, taking into account both the initial productive capacity reduction and its later growth. We are going to demonstrate the capabilities of our different teams since production volume this year has increased significantly from 2020.

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Q: What is Covestro’s approach to the circular economy? A: Circularity can be achieved by several different processes: a product can be broken down and its materials used for similar processes; products can be decomposed chemically and incorporated into another chain; finally, the energy of the materials can also be used in another process. Covestro views the circular economy from a chemical perspective. Many products will be thrown away at the end of their life cycle but products can be made out of chemicals that are designed to be later incorporated into another value chain. We achieve circularity through sustainable raw materials and using energy from renewable sources. Our new materials are designed to be used in several products. Polymers and plastics are precious materials because they require significant technology and energy resources. We aim to make the world a better place and we believe that sustainability is the only way to do business in the future. Covestro also has a global aniline production line that uses timber scrap or other biomass products. In some raw material production, we take CO2 from the air to manufacture polyurethane. Our plant in Spain requires 30 percent less energy to produce chlorine than regular procedures.

Arturo Molina

Q: What are Covestro’s R&D priorities regarding sustainability? A: Thanks to science, we can enjoy the quality of life we have now. R&D is the basis for all innovation and in 2020, we invested

Managing Director Mexico of Covestro

more than €$260 million (US$305 million) in R&D. By 2025, at least 80 percent of our investment in R&D will focus on sustainable solutions aligned with UN Sustainable Development Goals. We cannot achieve a sustainable world alone. We need to work alongside our suppliers, clients, end-consumers and

On the Road to a Circular Economy

government to build a more sustainable world. Q: How is Covestro supporting OEM’s carbon neutrality goals? A: Covestro has proven to be a cutting-edge company in material technology. We are fully convinced that the entire sector should drive the change together. Covestro is present in many parts of the vehicle, particularly in temperature and sound isolation. Thermal isolation brings several benefits, including less use of fuel for heating or cooling. Covestro has lighter polycarbonates used in vehicle lights, which helps to lower fuel consumption. Our coatings use water-based paints and we have achieved better operational efficiency in our painting processes. Covestro manufactures materials that support EV batteries, which involve many thermal management products that allow the battery to perform in optimal conditions. Each one of our solutions provides a benefit. When these are combined, they support more sustainable practices. Q: What opportunities does USMCA provide to Covestro?

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A: USMCA sets clear rules for the region and provides opportunities for companies in North America. Covestro complies with all the standards set by the treaty. We believe that supply chains spread among the three countries are more intertwined than before, which is strengthening the sector’s capabilities.

Conference

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Highlights

Material Technology Must Keep Up With Industry Needs Juan José Zaragoza President Mexico and Latin America of DuPont

Adriana Macouzet Vice President Latin America and General Manager of PPG

Elvia Bedolla Plant Manager at LAVARTEX

Pierre-Louis Dubourdeau President and CEO of Michelin Central America

Luis Gonzáles Director General of San Luis Potosi Automotive Cluster

s mobility rapidly reshapes according to the latest megatrands, the entire automotive supply chain must address the sector’s specific needs. “Players have to adapt to the mobility of the future. The megatrends 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,” says Juan José Zaragoza, President Mexico and Latin America of DuPont. 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 and greater energy efficiency. Technology, digitalization and sustainability goals, along with pandemic, have all come together to create major change in the automotive industry, according to Luis Gonzáles, Director General of San Luis Potosi Automotive Cluster. All materials in the vehicle, both on its interior and exterior, will play a key role in making the industry sustainable. “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,” says Adriana Macouzet, Vice President Latin America and General Manager of PPG. The automotive paint sector has also adapted technology common to the aviation industry, which enables cars to connect effectively and communicate with each other and the environment (roads or stop signs) in the best possible way. Innovation and smarter vehicles also include better, smarter tires. “Tires are the only part of the vehicle that touch the ground,” says Pierre-Louis Dubourdeau, President and CEO of Michelin Central America. The company is also building state-of-the-art tech solutions for the tire industry, including connected, rechargeable and airless tires. “Airless tires will bring peace and security for drivers and the possibility to improve fleet productivity. Our tires will not need maintenance and our ecological footprint will be reduced dramatically,” says 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 has introduced software that allows us to keep a

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precise inventory and serve our clients better. We have designed safer uniforms for the automotive industry employees,” says Elvia Bedolla, Plant Manager at LAVARTEX.

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Q: What are Evonik’s expectations as the automotive industry recovers? A: Mexico’s economic recovery between 2020 and 2021 was export-driven. North America’s automotive industry restarted operations in June 2020 and has been trending upward, with support from other segments. The sector’s challenges are now connected to supply chains, logistics and the lack of raw materials, which are delaying the recovery of different market segments and manufacturing. The automotive industry has also been challenged by the shortage of electronic micro-components and microchips, which will continue impacting the sector. Despite the circumstances, Mexico’s manufacturing and export industries remain strong and will grow with the relocation of supply chains and the nearshoring of manufacturing plants, trends that have been driven by the USMCA, the FTA with the EU and the increasing regionalization of manufacturing in the region. Automotive and aerospace were once the spearheads of Mexico’s development as a manufacturing hub and export platform. Now, other industries are growing, such as personal and household care, agribusiness, oral care, medical devices and appliances. We are seeing a strong recovery and sustainable growth in most market segments, supported by a resilient portfolio of specialty chemicals

Martin Toscano

for manufacturing and exports. Q: How are exports and other key drivers contributing to the recovery of the Mexican economy?

President and General Manager of Evonik Industries de México

A: The automotive industry in Mexico is well established and equipped. It has been driven by exports and supported by the production and exports of automotive parts. An increasing number of companies are coming to Mexico due to the relocation of supply

Driving Material Science Innovation and Sustainability

chains and the need to be compliant with the USMCA. While FDI in Mexico shrank in 2020, the country was among the least affected. Investment in Mexico’s automotive industry is here to stay and will address global demand. For that reason, we are seeing an increase in R&D and applied technology centers from OEMs, Tier 1s and Tier 2s, which speaks highly about the country’s technical capabilities. Q: Now that the race toward carbon neutrality is accelerating, what innovations in material science help Evonik’s customers reach greater levels of sustainability? A: Sustainability is a central element of our “Leading Beyond Chemistry” strategy. Evonik provides innovative solutions that help make lives more sustainable, healthier and more comfortable. As a specialty chemicals company present across the world, Evonik sees sustainability and long-term business success as two sides of the same coin. Our customers are increasingly demanding products and services that demonstrate a good balance of economic, ecological and social factors. Through our innovative capabilities and state-of-the-art technology, we empower our customers to offer a broad range of resource-efficient solutions, such as additives for hydraulic fluids. About 50 percent of the sales made by our chemicals unit are for products that make a measurable contribution to improving resource efficiency.

To reduce Evonik’s carbon footprint further, we are continuously optimizing our processes along the entire value chain by using alternative raw materials and biotechnological methods wherever possible. Through the initiative “Together for Sustainability,” we are promoting transparency and sustainability along the supply chain. Because we achieved our target and reduced greenhouse gas emissions ahead of schedule, our executive board introduced new environmental targets in February 2019. The new target is to reduce absolute scope 1 and 2 emissions by 50 percent by 2025 compared with 2008. This affirms our commitment to the Paris Agreement on Climate Change. We are reducing climate-relevant emissions by an estimated 3 percent per year. Q: What is the role chemical companies play in driving the innovation of material science? How is Evonik working on material science innovation? A: Evonik’s Smart Materials division uses innovative materials that enable resource-saving solutions. These products are continuously adapted to the needs of customers and they are the smart answer to the major challenges of our time: environment, urbanization, energy efficiency, mobility and health. The Smart Materials division’s strong technology platforms pave the way for better resource efficiency and sustainability. It produces inorganic materials with superior properties, such as silica, silanes, peroxides and specialty catalysts, and high-tech polymers, such as polyamide 12, polyimide, special polybutadienes and polyesters. It also manufactures composites and membranes using those materials. Our specialties shape fast-growing markets, including coatings, mobility, environmental, infrastructure and consumer goods. Moreover, materials that are more durable, energy-saving or sustainable have a direct effect on the end product. Q: As a member of ANIQ, how are you addressing raw material availability? A: A solid agenda and clear rules can support the generation of a sustainable Mexican chemical manufacturing sector that benefits from existing production capacities. This sector could be a reliable and competitive partner for the whole Mexican market. Mexico’s chemical industry could play a pivotal role in exports and support demand. There can be no development of manufacturing and production platforms in Mexico without a sustainable and solid Mexican chemical industry. ANIQ plays an important role in leading this strategy and presenting our concerns to the Mexican authorities.

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Q: How did the pandemic shift the industry’s perspective of 3D printing? A: The COVID-19 pandemic accelerated the adoption of 3D technology. Given the medical equipment shortages, 3D printing increased in popularity due to its ability to produce protective masks while tools and molds where ready to mass production of these parts. The pandemic served as a case study for 3D printing, proving its value when supply chains are broken or when companies are relaunching or rethinking a product. Q: In what areas is 3D printing innovating and what are the main challenges? A: Among the largest constraints in technology are materials. Companies are competing to develop the least expensive, most resistant and functional materials. 3D printing companies are developing and producing materials that can be used in final products, such as auto parts, rather than only for prototypes and for engineering pieces. During the past two years, 3D materials that are resistant to high temperatures and deliver strong mechanical performance became more popular because they provide, not only better visual finishing for the automotive and aerospace industries, but real strength and functionality as a end use part. Q: What alliances has Tridi built with other

Sebastián Romo

players in the 3D printing industry? A: Tridi forged a commercial partnership with US-based 3D printing company Stratasys, which is one of the worldwide leaders in this

CEO of Tridi

market. With this alliance, we have access to an infrastructure of over 300 3D printers in the US for building parts that are not possible to manufacture in Mexico. When our customers projects become bigger, we can bring the equipment to Mexico and produce for them. This business model enables our clients to

Additive Manufacturing Is Already Here

test those materials without making large investments. Tridi has focused on helping its clients test and experiment with materials, accompanying them as they come to understand 3D printing. Q: In what scenarios does 3D printing become costeffective and attractive for potential clients? A: We focus on clients for whom 3D printing will make the most sense. When it comes to manufacturing, production volume dictates if 3D printing is economically viable. For the automotive industry, which demands hundreds of thousands of parts every year, it will not always make sense. However, when volumes approach 1,000 units per month or 10,000 to 20,000 units per year, 3D printing makes complete sense. This technology works when the cost of manufacturing the entire production is lower than ordering a mold and starting to inject plastic. It is necessary to analyze the total cost of production. The more pieces produced with the plastic injection method, the lower the unitary cost will be. For example, if a mold costs US$1,000 and injection costs US$1, then manufacturing one unit will cost US$1,001 per part and

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manufacturing 1,000 units will cost US$2 per part. If a printed part cost between US$20 and US$30, you will have to balance the total cost depending on the expected volume. If the unit cost with plastic injection is over US$30, then 3D printing is the best solution in this case.

Material Technology | 61

How Is Material Technology Supporting Vehicle Lightweighting?

Lightweighting is not just a buzzword in the automotive sector, it is a priority. ICE vehicles go lighter to reach greater fuel efficiency, while EVs go lighter to expand battery autonomy. Material science companies, regardless of the vehicle segment, are strongly focusing on making the vehicle lighter.

Accelerating Hybrid, Electric and Autonomous Driving (AHEAD) continues to be an important strategy for us. About 40-45 percent of our sales in the mobility and materials segment come from advanced mobility products, namely electric and autonomous vehicles, and we have been working on technologies that will help us meet our sustainability goals. But our goals for traditional ICE vehicles and advanced mobility vehicles remain the same. Lightweighting and vehicle downsizing remain essential for both types of vehicles. Those factors promote greater efficiency, less fuel use and sustainable driving. As for electric vehicles, the lighter the vehicle, the longer

Juan José Zaragoza

the battery autonomy will be.

President Mexico and Latin America of DuPont

Despite the speed of the electrification trend, economies of scale will take time. Our traditional portfolio for ICE vehicles also works for EVs. We are a material science company, so component assembly, adhesives, material links and lightweight continue to be priorities. Our portfolio remains current and helpful to both types of vehicles but we are also considering how to expand our product portfolio to address the specific needs of EVs. Electrification is so important to the sector that all of our divisions are looking for new solutions. Some solutions developed for the mining industry can also be applied

José Pin

to the auto sector, which is why the multifaceted nature of our company helps us to better support the needs of our customers.

Head of Automotive and Aerospace Divisions Latin America at 3M

First, the goal is always to develop lighter vehicles. This is significant because lightweighting increases fuel efficiency. Certain elements within the vehicle can increase weight significantly, such as noise cancellation, which is achieved though isolation materials and special fabrics. To address this, we have created a different material that reduces the weight of these fabrics tenfold while increasing sound insulation. The key element in EVs is the battery and the industry is working to make batteries more efficient, lighter and less expensive. At PPG, we think about what a battery is and what is happening

Adriana Macouzet President and Director General México of PPG Industries

inside. The battery requires different layers of protection and that is where coatings come into play.

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Industry 4.0 | 66

Digital Twins Advancing Electro Mobility OEMs have introduced ambitious plans to reduce carbon emissions. Migrating toward electric mobility plays a central role in their strategies toward carbon neutrality. Electric vehicles, however, present new engineering challenges. Electrification itself represents a variety of options, including battery electric vehicles, plug-in or non-plug-in hybrids and even hydrogen fuel cell technology. New methods are emerging to address these obstacles in the value chain. “The pressure to innovate and produce massmarket vehicles forces the entire transportation industry to adapt and to deliver solutions that offer desired attributes – drive range, performance, life and in-vehicle experience – at low cost,” says Siemens in a recent blog post. Manufacturers and developers are introducing a solution to address these challenges in the form of “digital twins.” IBM defines a digital twin as a “virtual representation of an object or system that spans its life cycle, is updated from real-time data and uses simulation, machine learning and reasoning to help decisionmaking.” Digital twins are highly complete virtual models that represent with fidelity the physical elements of a product, whether it is a car, building, bridge or jet engine. A paper supported by the Vellore Institute of Technology in India written by Ghanishtha Bhatti et al highlighted the role digital twins have in improving the performance of lithium-ion batteries, the essential element of any EV powertrain. “The lifetime of these devices depends greatly on the materials used, the system design and the operating conditions. This complexity has therefore made real-world control of battery systems challenging. However, with the recent advances in understanding battery degradation, modeling tools and diagnostics, there is an opportunity to fuse this knowledge with emerging machine learning techniques toward creating a battery digital twin,” the paper reads. A digital twin acts as a “cyber-physical system” that both scientists and engineers from industry and academia can use to develop “more intelligent and interconnected battery management in the future,” states the paper. Academics point out that there are three stages of a digital twin model for EV batteries. First, there is the archetype modeling, through which the developer should decide first the segments to be displayed. Second, there is the modeling of virtual sensors, where the selection and implementation of computer-generated sensors are undertaken. Finally, the third stage is “to define the pertinent boundaries that shall be periodically updated to synchronize the archetype with the physical machine’s present condition,” states Wu et al on a paper on battery digital twins. Digital twins are not new to the automotive industry. They are also used in intelligent driver assistance, autonomous navigation, smart manufacturing and other developments. Recently Volkswagen and Amazon Web Services (AWS) launched an industrial cloud that will Read the complete article More about this topic

include a wide range of software applications. Digital twins have also been addressed during Mexico Automotive Summit by leaders in the heavy industry segment.

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Q: How is the automotive industry addressing challenges such as the chip shortage and sustainability trends? A: The pandemic disrupted global supply chains, not just those in Puebla, Tlaxcala or Mexico. The demand for semiconductors has also impacted many sectors due to the increased demand for computers, phones and other communication devices. In the automotive sector, there have been production shutdowns at Volkswagen and Audi, while companies in Mexico are handling the shortage as best they can. The semiconductor shortage will continue to be a challenge because we do not know when it will end. We thought the pandemic was going to be over much more quickly but it has been more than a year. Although vaccination campaigns have made significant progress, a large percentage of the younger population, and the vast majority of employees, have not been vaccinated. Companies still cannot work at full capacity because the conditions are not yet safe. Automotive companies were among the first to be ready to face the pandemic. Now that there are better-operating conditions, companies want all workers to be vaccinated to be able to work at full capacity. Q: Digitalization continues to present great opportunities, particularly at the lower end of the supply chain. How advanced are the cluster’s Industry 4.0 projects?

Mónica Doger

A: The cluster’s Innovation Committee is developing Industry 4.0 and automation projects to improve operational efficiency. We mainly seek to communicate the importance of digitalization.

Director General of CLAUZ

The committee also addresses clean energy issues and helps to create links between companies to reduce costs and move toward renewable energy. All OEMs have a strategy to reduce or eliminate their carbon footprint, not only in their operations but also in their supply chain. The goal is for the automotive sector to become a

Automation, HR, Supply Chain, Clean Energies Priorities for CLAUZ

clean industry. Q: What are the main strengths of the Puebla and Tlaxcala region and how has investment in the area increased in the last few years? A: Puebla and Tlaxcala are both attractive regions for new investments. If we analyze the statistical data related to investment in the country, over 70 percent are reinvestments while over 20 percent are new investments. Tlaxcala has been more aggressive in attracting investment thanks to its outstanding industrial parks and attractive incentives for companies. Puebla is also making strides in this direction. Even so, foreign companies are interested in the region. In mid-2021, we received a British company from the automotive plastics sector that wanted to invest in this region. There is a lot of interest because we are a safe area, unlike other states. Q: What is the potential for the region to become an R&D hub? A: Puebla has always distinguished itself for its technological

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universities and renowned educational centers. After Mexico City, we are the state with the largest number of educational institutions. That said, there is still a great deal of potential to develop specialized technology centers. We need to support the education sector to address our gaps in comparison to other countries.

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Q: Experts says 5G technologies will be better be adopted through manufacturing applications. What are Siemens’s advancements in this regard? A: 5G is an important technology for the future of IoT applications as it offers a bandwidth between 1 and 5 gigabits per second, which is 10 to 20 times what we have today. 5G networks increase device density to 1 million devices per square kilometer. For a manufacturing space, this will be essential. Also, it will maintain low latency so different devices can react quickly. This will be an essential characteristic for the safety of the factory of the future. In autonomous vehicles, for instance, latency and quick responses are vital for safety. At Siemens, we have advanced global 5G standards for the industrial sector. In 2019, we deployed our first 5G network in Germany at a test center in the automotive sector. At this facility, we installed AGV to facilitate operations across the floor. Q: What is your perspective on additive manufacturing and how is Siemens contributing to these technologies? A: We are present across the value chain of 3D printing and additive manufacturing. Siemens has invested more than €500 million (US$610 million) to test additive manufacturing alongside our customers. This segment has been growing for many years now and we have used these technologies since 2012 in the

Alejandro Preinflak

production of energy and railway spare parts. We have over 200 components for energy generation coming from additive manufacturing that are printed on site, saving a lot of resources and time.

CEO of Siemens Mexico and Central America

Siemens works alongside its clients and startups to support additive manufacturing. In the automotive industry, we worked with Bugatti to print components made of bionic titanium. These are really specialized components that reduce weight by 50

A Look Into Sophisticated Manufacturing Processes

percent and adhere to other specifications for advanced auto systems that demand high performance. Q: How does Siemens support other companies to fulfill their carbon neutrality goals? A: Sustainability plays a central role for Siemens. Globally, we aim to be a carbon neutral company by 2030. In Mexico, we have been carbon neutral in all of our operations since 2020. We have a product portfolio designed to help our clients reduce their carbon footprint and 46 percent of our global sales came from our sustainable portfolio. In 2020, we reduced 7 million cubic tons of CO2. Between 2012 and 2020, we helped our clients reduce their CO2 emissions by 150 million cubic tons. We are implementing a new energy model that involves all parts of the supply chain. It is not just about reducing emissions at the facility where the final product is assembled, but to reduce emissions throughout the entire supply chain. At our plant in Germany, we are implementing traceability systems based on blockchain, in which every company involved in every link of the chain registers its carbon footprint, allowing us to trace

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a product’s entire carbon footprint. This innovation will allow us to assess carbon neutrality goals. It will play an important role in implementing more sustainable operations. This system introduces transparency on carbon neutrality and allows us to get inputs to design better sustainability strategies.

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Q: How is ABB introducing products to the Mexican market from its recent acquisitions? A: We are starting to distribute B&R products in Mexico through our integrators and OEM partners. We are also integrating a robotic element to B&R’s products to generate a complete cell that includes welding and gripping. We are now testing the digital layers of the robotic cells, which will allow us to take the next step from just connected robots to a fully digitalized cell. Our system will identify and integrate all communication protocols from equipment of any brand and create a digital layer in the cloud that will allow companies to better monitor product quality, efficiency and other key elements in the cell. Before the end of the year, we will provide a B&R demo virtual cell to the market. We recently purchased ASTI Robotics, which manufacturers mobile robots, to complement ABB’s portfolio. Q: To what extend do B&R models complement other solutions such as digital twins? A: The human-machine interface (HMI) of the B&R model can be connected to the company’s enterprise resource planning (ERP) system to create a digital twin that displays robotic operations, manufacturing processes and other related processes or key indicators, such as welding or air pressure. While the digital twin provides a more user-friendly display of the cell, the R&B

Sergio Bautista

model allows the company to monitor the manufacturing cell in real-time through complementing IIoT features. In some cases, we build cells based on digital twins.

Robotics and Discrete Automation Director of ABB México

Q: How is ABB incorporating machine learning and AI into its technologies? A: Data analysis capabilities have increased considerably, particularly regarding monitoring and image recognition

B&R Digital Cells Improve Manufacturing Efficiency

applications. It is hard to tell where the line is drawn between big data analysis of real-time manufacturing data, which is what is happening, and AI applications. Image recognition, for instance, can be incorporated through a robot that is able to identify from a basket of pieces which belong to which processes. This can be done through a basic AI system but also through heavy data analysis. The line between the two is blurry. Other technologies, such as the cloud, also open the door to interesting solutions. For example, connected robots upload their information to the cloud, including that of equipment malfunctions. If a robot suffers a failure or incident that occurred previously to a different robot, the system can replicate the solution that was used in the first malfunctioning robot or learn from itself to better prevent future risks. Q: How does ABB support the automotive industry in its sustainability goals? A: The automotive industry is changing its standards to address the needs of EVs, which require lighter materials, more aluminum pieces and less steel. At ABB, we are

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constantly trying to optimize the robot’s movements to reduce energy consumption. ABB supports the automotive industry’s sustainability goals, from vehicle and auto parts production processes to energy-efficient-robots. Efficiency is part of ABB’s DNA.

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Q: What is SKF’s mission in the automotive industry? A: The company’s main focus is on engineering and industrial knowledge. SKF is always working to innovate and all of our engineering departments are creating new automotive solutions. The present-day bearings used across the world were originally developed by SKF. SKF has always offered better-than-expected products for friction reduction, lightweighting and improving efficiency. For instance, we have always been partners with Ferrari in Formula 1, which can be considered our 300km/h laboratory. SKF develops robust solutions tailored to the specific needs of every client. Q: How is SKF facing the electrification and autonomous driving trends? A: Electrification is a megatrend and SKF is right in the middle of it. We provide every wheel and transmission bearing for Tesla vehicles. Production for EVs is different than for internal combustion vehicles. For EVs, we produce friction-reducing bearings with greater capacity for electric charges. Autonomous driving is another big trend that is changing the market and requires different components. In Mexico, SKF uses cutting-edge technology in its manufacturing and we see significant opportunities in the traditional powertrain

Cristóbal Magallanes

market. However, the EV market in Mexico is not robust enough. While there are opportunities for engineering, Mexico still has a long way to go in EVs.

Automotive Business Leader of SKF México

Q: How does Big Data help SKF improve its products? A: SKF is a global leader in interpreting information and using it to adjust processes. We collect data to generate precise analyses. We do not have an integral vision. We focus on what we do best:

USMCA to Bring Big Opportunities for Mexico

reducing friction in rotating equipment. Our engineering backup helps us offer a robust product, which will not always be the least expensive option but will be a robust solution. This sensorization of the powertrain, mostly in heavy vehicles, is one of the biggest trends in the sector. Live monitoring, data collection and diagnoses are key to continue offering the most robust product possible. SKF is now testing remote monitoring in the US. We have a contract with an important logistics brand to monitor the operational conditions of the bearings using sensors. The bearings are completely dynamic and their sound, vibration and temperature inform operators of any problems with the bearing. This allows them to program maintenance services. Q: How has SKF grown its business in the country? A: In 2006, Mexico’s automotive industry represented US$3 million in business for SKF. Now, it is a US$120 million business. We originally started working with Volkswagen de México, American Axle, Ford, Nissan and General Motors. About 60 percent of the bearings manufactured in Mexico are for General Motors and roughly 75 percent of our production is exported. Our

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plant focused in Puebla focuses on bearings and the facility in Guadalajara focuses on seals for powertrains and transmissions. We recently acquired two more plants in Monterrey to produce bearings for other industries and one of those plants will later produce bearings for heavy vehicles.

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Q: How has Universal Robots supported growing automation efforts before and after the pandemic? A: The inherent flexibility of Universal Robots’ collaborative robots (cobots) helped support the rapid development and deployment of automation globally. The key is that being a smaller type of robot – compared to those regularly used in plants – they can physically interact with humans in a collaborative work environment. As many companies and production plants implemented social distancing, the use of Universal Robots’ cobots allowed companies to optimize operations without affecting business production. Q: What were some of the lessons learned from the pandemic? A: 2020 was a year of change. Our market analysis gave us four important lessons. First, agility became key to make informed decisions and turn them into action plans to help industries find their way through difficult periods and seize new opportunities. Second, many business owners evaluated exiting their business, which is common in periods of economic uncertainty. COVID-19 was no different. To get the most out of what companies have built, owners must create a succession plan. Three, downtime provides opportunities to update and invest. With manufacturing plants forced to shut down, some organizations took advantage of the offline time to upgrade

Abraham Sosa

IT systems and update processes. Finally, automation and collaboration were put into practice. To reduce employee interactions, manufacturing organizations turned to automation to keep team members safe. Automation adoption

Director of Global Accounts Latin America at Universal Robots

will be one of the legacies of the pandemic. Organizations should continue to explore automation opportunities to start maximizing its impact. Q: What are the key drivers of companies

Universal Robots Aims to Make Impossible Automation a Reality

adopting these alternatives? A: Today’s manufacturing environment is under increasing pressure to be more flexible due to uncertain production volumes and product lifetimes. A safe and flexible cooperation between robot and operator improves productivity in a flexible production system. Manufacturing companies are experiencing an increase in human-robot interactions and in the use of cobots. Empirical results gathered by Universal Robots reveal that companies are concerned about “operational efficiency” and “ergonomics and human factors.” Drivers are aligned with productivity, flexibility and quality improvements. Understanding these drivers can help motivate manufacturing companies to adopt cobots and reap the benefits of this technology. The cobot brought to the Mexican industry the possibility of automating areas that could not be transformed previously due to the unpredictability of traditional automation. Q: What is the main added value that cobots could bring to the automotive industry and what are the obstacles to achieve this? A: Parts of the automotive manufacturing process have been highly automated for decades but some tasks remain highly dependent on manual labor. For tasks like screwdriving and

assembly, the flexibility and small footprint of UR’s cobots benefit automakers. A large part of auto production occurs in urban areas that lack an extra 100,000m2 to expand into. In highly regulated sectors like automotive manufacturing, where traceability is key, cobots also help manufacturers control and track key production processes, such as the precise torque applied to screws when they are mounted to the car body. Q: Do you see a future when cobots outnumber traditional robotic equipment? A: Robots regularly perform low value-added or dangerous jobs, allowing technicians to focus on their core business and create more added value. In comparison, cobots provide businesses and industries with unmatched flexibility, increase productivity and maintain competitiveness. The adoption of collaborative robots worldwide has grown in recent years and, without a doubt, machines that can collaborate with workers without causing them any risk will be increasingly common. Q: How is Universal Robots advancing the fifth industrial revolution? A: Industry 5.0 puts people at the center of production, shying away from mass production to focus on customization. In this age of technological advances, machines and humans work together to improve manufacturing processes. Although many say that robots will replace workers, a better review of the data shows that nothing could be further from the truth. Cobots will benefit workers who will be exempted from carrying out the most tedious and dangerous tasks, which will be entrusted to collaborative robots. The worker’s role is to supervise and program the cobot. Even those without skills in robotics can program them thanks to its intuitive interfaces. Q: How is Universal Robots ensuring flexible solutions for small and medium customers? A: Until recently, most SMEs did not consider acquiring an industrial robot due to its large size but cobots are much more compact, versatile and affordable. We might be facing the democratization of collaborative robotics. Some companies are retaking the production processes they had outsourced thanks to cobots. We are at the dawn of a revolution at the hand of collaborative robotics, which are predicted to grow by 60 percent in 2022, according to technology consultancy MarketsandMarkets. The sector is expected to be valued at US$3.3 trillion in 2022.

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Industry 4.0 | 73

5G: Multibillion-Dollar Manufacturing Potential Fifth-generation wireless technology, commonly known as 5G, has the potential to reshape manufacturing operations. Greater levels of automation, data warehouses, augmented reality, cloud computing and state-of-the-art Industrial Internet of Things (IIoT) will drive the deployment of 5G networks at manufacturing facilities. “With 5G, new sets of solutions and products will emerge. Some of them may be only in our imagination but 5G will make them possible,” says Joaquín Saldaña, Strategy Director of Huawei Mexico. There are three fundamental characteristics of 5G that will enable applications “beyond our imagination,” as Saldaña states. First, higher speed with an enhanced mobile broadband that can support up to 20GB of data. Second, low latency, which means a rapid response from devices of around 1ms. Finally, massive connection or the possibility to connect more than 1 million devices per square kilometer to the same network. Manufacturing is among the industries most likely to be transformed by 5G, according to MIT Sloan School of Management. “The new network stands to enable or improve technologies as far-ranging as holograms, artificial intelligence and machine learning, industrial robots, drones and smart cities, buildings and homes.” As PwC notes, “the modern factory is already a highly complex environment. Advanced machines and robots are equipped with a wide array of sensors connected to high-powered analytics engines in the cloud that assess performance, manage production schedules, maintain supplies and orchestrate all the activities on the factory floor.” All this forms the ideal ecosystem for a more cohesive IIoT. Ericsson, one of the world leaders in telecommunications and 5G applications, estimated that by 2026, the 5G applications market will be worth US$113 billion, with manufacturing representing “one of the most significant sectors for new revenue potential.” CEO of Siemens Latin America Alejandro Preinfalk and Product Manager of Qualcomm México Ricardo Anaya agree on the potential this technology will have on manufacturing operations in the country. On the one hand, Preinfalk says 5G networks increase device density to 1 million devices per square kilometer. “For a manufacturing space, this will be essential. Also, it will maintain low latency so different devices can react quickly, which will be an essential characteristic for the safety of the factory of the future,” he says. Anaya agrees: “The cornerstones of 5G are more bandwidth, better latency and more user capacity. When implementing 5G, these three pillars and the new frequencies on which this technology works allow for network deployments that are very different from what we are used to.” According to MIT Sloan, the full impact of these technologies is yet to be seen. “What is clear is that it is ripe with opportunity for fields as varied as entertainment, manufacturing, healthcare and retail. Successful enterprises will tap 5G to boost IoT applications, virtual and augmented reality and larger-scale robot and drone deployments.”

Advanced Manufacturing With 5G STL Partners and Huawei’s study highlighted seven uses for 5G technologies in manufacturing operations: advanced predictive maintenance, precision monitoring and control, augmented reality and remote expert, remote robot control, manufacturing as-aservice, automated guided vehicle and drone inspections. Out of these applications, Huawei expects 5G’s greatest impact in terms of segment value will be on precision monitoring and control, followed by augmented reality and remote expert and advanced predictive maintenance. Preinfalk says that Siemens is already adopting some of these features in its technology and solutions. “In 2019, we deployed our first 5G network in Germany at a test center in the automotive sector. At this facility, we installed AGV to facilitate operations across the floor. We also incorporated different industry protocols for data processing.” Another 5G advantage is the ability to create successful digital twins and also scan facilities for maintenance. Ayear ago, Ford unveiled dog-like robots to monitor its facilities, reducing inspection time from weeks to days. Moreover, Boston Dynamics, the company manufacturing the robots, was recently acquired by Hyundai Motor Group “to secure a leading presence in the field of robotics.” In the case of the robots, they work together within the factory’s network, usually through a Wi-Fi network. With 5G, the number of devices, or robots, can increase without interfering with one another. “One popular approach is to use the 4G network as an anchor and add a traditional spectrum to it to get 5G. Eventually, this network becomes fully 5G because of the amount of data it is receiving. This is known as a standalone (SA) network and it opens up the opportunity to develop private networks, which are transforming many industries, such as mining, manufacturing, automotive and even infrastructure providers. For example, Germany already has more than 70 private or on-site networks in operation. Some companies in Brazil are also allocating spectrum for this,” says Anaya. 5G Networks in Mexico Advances have been made at the global level regarding 5G networks. According to a recent study by Viavi Solutions, a global provider of network test and monitoring solutions, 1,662 cities across 65 countries now have commercial 5G services, excluding private networks. In Mexico, there are several steps that need to be taken to advance this technology. Partnerships, infrastructure and investments are just some of the main elements to consider. “Mexico faces a lot of challenges to make 5G connectivity a reality. It cannot be a goal to be taken solely by the mobile industry but by different actors at all levels and sectors, including consultancy services, digital education and appropriation,” says Federico Hernández, Partner at Hogan Lovells. As for investors, Anaya is confident this year there will bring some clarity regarding this technology. “5G networks are still under development. We have been working with all operators in Mexico and throughout Latin America to support the evolution toward 5G. As of July 2021, 169 operators worldwide have launched a 5G network. In the US, South Korea, China and the EU, 4G networks were saturated and urgently needed to increase capacity. In Mexico this is not the case, although operators in Read the complete article

Mexico are investing heavily to deploy 5G technology and I am confident that this year we will have some news of rollouts in the

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country,” he says.

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Q: How has 5G technology advanced in North America and how is Mexico working toward the implementation of this technology? A: Here in Mexico, we are working on 4.5G networks that offer almost 1 gigabit of data. However, 5G networks are still under development. We have been working with all operators in Mexico and throughout Latin America to support the evolution toward 5G. As of July 2021, 169 operators worldwide have launched a 5G network. Operators in Mexico are investing heavily to deploy 5G technology and I am confident that this year we will have some news of rollouts in the country. In the spectrum, there is a 5.9 GHz frequency where Dedicated Short Range Communications (DSRC) technology is used, based on a standard similar to what is used in Wi-Fi. In the EU and the US, a piece of spectrum has already been set aside for the exclusive use of the automotive industry. This is what we are also recommending to the Mexican government. The automotive sector should have a spectrum of at least 40 MHz. In the US, 70 MHz were allocated for CV2X to have sufficiently large channels to be able to offer automotive services. These services could be warning systems, security, navigation, downloading of high-definition maps, traffic and environmental monitoring. Q: How is 5G technology for industrial applications advancing in Mexico?

Ricardo Anaya

A: The cornerstones of 5G are more bandwidth, better latency and more user capacity. When implementing 5G, these three pillars and the new frequencies on which this technology works allow

Staff Product Manager of Qualcomm Mexico

for network deployments that are very different from what we are used to. One popular approach is to use the 4G network as an anchor and add a traditional spectrum to it to get 5G. Eventually, this network

Adoption of 5G to Revolutionize Automotive Industry

becomes fully 5G because of the amount of data it is receiving. This is known as a standalone (SA) network and it opens up the opportunity to develop private networks, which are transforming many industries, such as mining, manufacturing, automotive and even infrastructure providers. For example, Germany already has more than 70 private or on-site networks in operation. Some companies in Brazil are also allocating spectrum for this. Mexico should also consider allocating certain frequency spectrums to deploy very specific networks. Q: How is the semiconductor sector working alongside its partners to address the global shortage? A: This is not a shortage but overdemand. All the supply chains have undergone major changes, leading to the overdemand of semiconductors. We had 500 million smartphones scheduled for 2021 and we had forecasted a US$9 billion budget between 2018 and 2027 for semiconductor technology for the automotive industry. Our forecast remains the same. There have been, however, technological disruptions that have increased the demand from other industries. We have had to adapt because Qualcomm does not even make the chips. We develop the

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technology and the manufacturing models but the production is outsourced. In addition to the pandemic halting production, demand also increased because everyone now requires a smartphone, more computers and streaming consoles at home. We expect supply chains to stabilize in two to three years.

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Q: What is the added value of SAP for auto parts manufacturers and OEMs? A: Globally, SAP helps over 400,000 companies in 25 industries be more competitive in the innovation of their processes. In the automotive sector, SAP has precise solutions for each process in the value chain, including R&D, manufacturing, supply chain, sales and marketing and after-sales services. SAP also supports the sector’s transition toward more sustainable and intelligent models. SAP is a technology ally of key companies in each industry. Recently, BMW and SAP founded the Catena-X Automotive Network with other leaders in the automotive sector to redefine its future. These leaders aim is to increase the competitiveness of the industry, improve efficiency and accelerate processes through standardization and access to information and data. SAP’s alliance with the automotive sector includes a shared vision of continuous exchange of data for all employees throughout the automotive value chain. With a powerful and holistic system, we guarantee the economic viability of all network partners, from SMEs to corporate groups. Q: What is the structure of Catena-X and how does it help the automotive sector?

Ana Nuñez

A: Catena-X is made up of three pillars. The first is Initial Use Cases, which places the alliance at the core of the initial data exchange in the automotive industry. This is used to ensure traceability of vehicle components until the moment of their

LAC Hub Lead for Digital Supply Chain CoE, Business Dev. Director of SAP Mexico

assembly, as well as the traceability of carbon footprint and a collaborative management between manufacturers and suppliers. The second pillar is Technology and Network, which connects to cross-sector networks and technologies for data infrastructure (GAIA-X) and data exchange to benefit from a holistic operating

Effective Digital Practices Guarantee Market Success

system. The objective is to offer interoperability and efficiency between manufacturers and suppliers. The third pillar is Transfer and Escalation, through which we connect suppliers in the industry. The Catena-X network is open and our technologies are scalable no matter the size of the business. Q: How is SAP leading the digital transformation of manufacturing? A: With the increasing diversity of car models, complexity is increasing and traditional linear production on assembly lines is reaching its limits. Enabling modular manufacturing will be key to efficiently generate heterogeneous models at scale, providing a quick and flexible way to react to changing customer demand. Operating a digital supply chain with smart and modular manufacturing requires new capabilities along the value chain. Our innovations for the sector include SAP Digital Vehicle Hub and SAP Asset Intelligence Network, which can be used in open and secure value creation networks. SAP S/4HANA supports integrated supply chain planning and execution, while SAP Extended Warehouse Management integrates

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logistics operations, SAP Integrated Business Planning for Supply Chain supports comprehensive supply chain planning, SAP Predictive Asset Insights supports data-driven insights and SAP Digital Manufacturing Cloud helps enable manufacturing insights and execution.

Conference

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Highlights

AI, Machine Learning Offer Real Manufacturing Solutions Sergio Bautista Robotics and Discrete Automation Director of ABB México

José Rivero 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

rtificial 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, the automotive

supply chain could reap substantial benefits. “The technology is already here. Mexico’s problem is that while 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,” says Sergio Bautista, Robotics and Discrete Automation Director of ABB México. The pandemic, technology and changes in consumer behavior are disrupting the operations 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. New-generation 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 of data being generated. The right connection and use of this information help life cycle management, processes design, supply chain management and manufacturing processes,” says Javier Vallejo, Senior Manager of Architect Solutions at AWS. AI is not only used for autonomous vehicles, it is also useful for forecasting, according to José Rivero, 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,” says Rivero. These sensors enable companies to know how machines are working in real-time and forecast the ideal periods for preventive maintenance, saving time and money. AI solutions are also being offered “to clients looking to give their customers a plus, aiming to reach the highest standards of quality,” says Abraham Sosa, Director of Global Accounts in Latin America at Universal Robots. While collecting data is key to making well-informed decisions, there is more to it. “Data is vital in the manufacturing process. You cannot improve something that you did not measure to know its exact condition. Integration into an ecosystem is needed for a future

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intelligent plant that is able to automatically control processes, inventory, budgets and forecasts,” says Ricardo Anaya, Product Manager of Qualcomm.

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Q: What is Infor’s added value compared to other ERP systems and how does that translate to operational efficiency? A: We offer tailored solutions with embedded industry-specific best practices, last-mile functionality, including EDI trading partner support, and analytics embedded with AI and ML to provide the best insights. We also support all manufacturing schemes, including just-in-sequence assembly and Job Shop, and we ensure a rapid implementation via the Infor Agility approach, which greatly reduces time-to-value. After 30 years in the automotive industry and registering over 3,000 installations, Infor’s auto solutions are tailored to industry’s needs. We offer a multi-enterprise business platform (Nexus) that enables real-time collaboration, visibility and improved sense and response for all stakeholders. This improves decision-making through actionable insights driven by singlesource truth/data integrity. The system also frees critical human resources from manual tasks so they can focus on more critical items, thus increasing customer and supplier satisfaction. Q: In an environment plagued with shortages, what advantages do ERP systems bring to automotive manufacturers and why is ERP the best option to manage demand and inventories? A: The recent events that have disrupted supply chains

José Rivero

all around the world have been a call to action for many organizations. OEMs, suppliers, logistics providers and other partners are all seeking to meet demand and supply needs efficiently. They all recognize that building cost-effective,

Country Manager Mexico of Infor

resilient supply networks is now possible, accelerated by advancements in technologies, business readiness and the overall ability to manage and respond to information faster. While companies continue to build the foundations necessary

Cloud Capabilities to Drive Forward Innovation

for resilient supply chains from the inside out, they must actively seek new ways to manage risks and to respond faster and more accurately. The following guiding principles can help keep such efforts oriented toward resilience: 1. Managing supply chains based on trust. Determine the objectives of the collaboration as well as the key information that needs to be shared between partners. 2. Establishing cross-functional teams to drive end-to-end integrated behavior—starting with the customer experience. 3. Developing sourcing strategies that will distribute risk for critical commodities across dual/multiple suppliers that span geographies. 4. Integrating manufacturing and logistics planning into the visibility spectrum. 5. Begin building the right talent, based on the capabilities that will be required in the future to enable new ways of working. 6. Leveraging the digital ecosystem. Investing in the right infrastructure to take advantage of cloud platforms, AI/machine learning capabilities and other emerging technologies that can curate information in real time to drive insights for faster responsiveness. 7. Establishing cascading executive sponsorship and a focused change management program to drive and manage the change. The concepts surrounding resilient supply chains are not new. What is new is the growing need for extended enterprise integration supported by technology. This transformation starts with an ecosystem of partners coming together, seeking

common goals and having the will to measure and manage the impact. Regardless of the ups and downs of socioeconomic and geopolitical factors, the reason to focus on collaborative supply networks remains a compelling one: Collaboration is the cornerstone of resilience and the status quo is simply not an option. The time to embark on this journey is now. The industry cannot afford to be unprepared when the next crisis arises — as it unfortunately and inevitably will. Q: What is the role that data science, data analytics, machine learning and other predictive models play within Infor’s operations? A: We have spent the last three years acquiring, developing and migrating best-in-class advanced analytics platforms to a true SaaS MT cloud offering, including business intelligence, artificial intelligence, process intelligence, performance management and governance, risk and compliance. This is all sourced from a single, near-infinitely scalable data lake and all delivered through a single user experience within Infor OS. No other company today can offer every one of these solutions in a true multi-tenant cloud with a unique focus on industry analytics like we can. Most organizations have multiple ERPs, business applications and back-office systems for their various businesses, joint ventures or geographies. Integrating this data for a C-level view across the enterprise is manual, tedious, inefficient and error-prone. It is also almost impossible to adapt to ever-changing business needs, hence the fatigue with enterprise data warehouses. Infor Industry Analytics delivers relevant and meaningful insights, on-demand, from the boardroom, to the shop floor. Workers can access data in our Industry CloudSuites, allowing customers to see the impact of decisions before they are made, driving better business outcomes. Interactive analytics are seamless, allowing customers to navigate from built-in dashboards and report individual transactions, making it easier to take the next best action and improve productivity. Infor Analytics can also be easily extended and enriched with key third-party data sources using patented automation technology. In addition, enterprise data can be easily prepared for advanced AI and ML use, all from a single source. Customers can now easily implement good governance across data from multiple ERPs and other key applications with a well-managed semantic layer and usage rules. All of this is delivered in the cloud, eliminating the need for multiple ETL solutions, databases and visualization tools.

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Conference

Industry 4.0 | 80

Highlights

Traceability, Clean Energies Fuel Carbon Neutrality Push Pablo Rivero Country Manager of ForeFront Power

Luis Vera

upply chain traceability and clean energies remain essential to carbon neutrality strategies aiming to reduce the auto sector’s carbon footprint. OEMs have set ambitious carbon neutrality goals but the supply chain is not far behind in reducing carbon

emissions. Current strategies highlight two key elements: resource and energy management, and supply chain traceability. “Carbon neutrality requires a neutral output of CO2 emissions. If a company is generating CO2, it must mitigate that impact in some other way,” says Pablo Rivero, Country Manager of ForeFront Power.

Managing Partner at Vera y Asociados

Ana Núñez LAC Hub Lead for Digital Supply Chain CoE and Business Development Director of SAP Mexico

Companies must first identify what is 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. For 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,” says Ana Núñez, LAC Hub Lead for Digital Supply Chain CoE and Business Development Director of SAP Mexico. Resource 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 are 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 acquire social licensing to perform these processes and avoid being considered the enemy,” says Luis Vera, Managing Partner 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 authorities. “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, the entire process and components must be traceable. Companies should also evaluate how those

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emissions will be replicated in the production line and analyze how to optimize these routes until the vehicle reaches the dealership floor,” says Núñez.

Industry 4.0 | 81

What Is the potential of 5G Manufacturing Applications?

Fifth generation wireless technology (5G) is paving the way for more sophisticated IIoT applications with low latency, higher speed and capable of managing a greater number of interconnected devices. Here, experts deploying the solutions in the field discuss the potential of 5G manufacturing applications.

The cornerstones of 5G are more bandwidth, better latency and more user capacity. When implementing 5G, these three pillars and the new frequencies on which this technology works allow for network deployments that are very different from what we are used to. One popular approach is to use the 4G network as an anchor and add a traditional spectrum to get 5G. Eventually, this network becomes fully 5G because of the amount of data it is receiving. This is known as a standalone (SA) network and it opens up the opportunity to develop private networks, which are transforming many industries, such as mining, manufacturing, automotive and even infrastructure providers.

Ricardo Anaya Staff Product Manager México of Qualcomm

We are running tests alongside Ericsson to make robots for 5G networks, which enables a faster communication speed, low latency and ultimately a smarter and more connected manufacturing. There are many potential applications for 5G networks. Mexico needs to address its regulatory and technical elements before 5G can penetrate the country. It might not be for the general public, however. A better approach will be to place some antennas in industrial niches that can take full advantage of the potential applications. Our portfolio goes in that direction. Other technologies, such as the cloud, also open

Sergio Bautista

the door to interesting solutions.

Robotics and Discrete Automation Director of ABB México

There will be many 5G applications, including mobile robots, autonomous guided vehicles (AGVs) for logistics operations, IIoT and 5G-enhanced maintenance that will allow technicians to provide real-time support. Network reliability is also important because industrial applications have zero tolerance for errors that could impact production. At Siemens, we have advanced global 5G standards for the industrial sector. In 2019, we deployed our first 5G network in Germany at a test center in the automotive sector. At this facility, we installed AGV to facilitate operations across the floor. We also incorporated different industry protocols for data processing.

Alejandro Preinflak CEO México and Central America of Siemens

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Connected, Electric Vehicles OEMs are increasingly adopting Connected, Autonomous, Shared and Electric (CASE) mobility and the sector no longer doubts that these technologies will be fully adopted in developing markets in the midterm. Meanwhile, electrified vehicles, be they hybrid, plug-in hybrid or battery electric, are enjoying a solid sales performance compared to previous years. Connected vehicles imply an in-depth interaction of the vehicle’s components with external devices. As vehicles are now becoming the most important connected device, they are generating a vast amount of data that can and must be managed to continue competing in the sector.

Connected, Electric Vehicles

Analysis Automakers’ Electrification Targets

View From the Top Elisa Crespo | Director General and Adviser of the Automotive Cluster of the State of Mexico

View From the Top Luis Lozano | President of Toyota Motor de México

View From the Top José Román | President and Director General of Nissan Mexicana and NIBU

View From the Top Elias Massri | CEO of Giant Motors Lationamérica

View From the Top Mónica Samudio | Country Managing Director for Mexico and Central America, Circutor

Analysis Data: The New Link in the Automotive Supply Chain

View From the Top Ricardo Anaya | Staff Product Manager of Qualcomm Mexico

View From the Top Oswaldo Cacheux | Commercial Director of HINO

Conference Highlights Vehicle Connectivity Increasingly Closer Thanks to 5G

Infographic Electric Vehicle Trends in the Mexican Market

Conference Highlights Telematics Are Crucial for Smart Fleet Management

100 View From the Top Rodrigo Centineo | Founding Partner and CTO of E•DRIVE Daniel López | Founding Partner and CCO of E•DRIVE Pedro Corral | Founding Partner and COO of E•DRIVE

101 Roundtable How Are Brands Fostering the Adoption of EVs, HEVs and PHEVs?

102 Content Links

Connected, Electric Vehicles | 86

Automakers’ Electrification Targets Electrified vehicles are at the core of ambitious goals toward a more sustainable auto sector. Over the last two years, many lightvehicle manufacturers have announced and updated their goals regarding electrification and the role that EVs will play in their long-term strategies. Some automakers have set clearer targets than others and some have broader plans regarding Mexico’s participation in this green transition. “Electrification is not coming, it is already here. Globally, there are more than 3 million vehicles powered by alternative energy sources and 75 percent of them are electric,” says Elias Massri, CEO of Giant Motors Latinoamérica. OEMs’ specific targets for electrified vehicles include battery electric vehicles (BEVs), fuel-cell electric vehicles (FCEVs), nonplug-in hybrid vehicles (NPHV) and plugged-in hybrids (PHVs). Here are some of them: GM: All-Electric Future The US giant has quickly deployed ambitious targets for zero crashes, zero emissions and zero traffic. Its shift toward more ambitious electrified vehicle development accelerated over the last year and the company has agreed with US President Joe Biden’s plans to accelerate EV infrastructure. GM’s goals include 30 new global electric vehicles by 2025, of which more than twothirds will be available in North America. Volkswagen Group: Zero Emission Future Although the Volkswagen Group encompasses several brands in the light- and heavy-vehicle segment, the Volkswagen and Audi brands have presented clearer targets toward electrification. The group expects the ICE market to decline by more than 20 percent over the next 10 years, while BEVs are expected to rise by 50 percent. The group expects that by 2040, nearly 100 percent of all new vehicles in major markets should be zero-emission. BMW Group: New Era, New Class The German automaker earlier in the year announced its strategy for “A New Era, a New Class.” As soon as 2023, 90 percent of all of the group’s vehicles in different market segments will have an electrified option. Two years later, by the end of 2025, deliveries of fully electric models will grow by over 50 percent annually on average and the brand expects to have delivered around 2 million fully electric vehicles. By 2025, the group will also have a fully electric vehicle for all market segments in which it participates, while in some segments, brands will solely focus on electric models. By 2030, the MINI brand will become fully electric, while half of the group’s deliveries will be fully electric. Toyota: Leadership in Electrified Models Toyota is perhaps the automaker with the greatest share of sales coming from electrified vehicles. Just in Mexico, the company has reported that more than 20 percent of its sales come from these vehicles. The company’s performance is reflected in its ambitious targets. By 2025, the company will have 70 electrified models, including 15 BEVs. In North America, Toyota expects electrified vehicles to represent 70 percent of its sales by 2030, Read the complete article More about this topic

the majority of which are expected to be hybrids. Notably, BEVs and FCEVs combined will make up 15 percent of the company’s total sales by 2030.

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from the

Q: What new projects has the cluster implemented regarding technological transformation and sustainability? A: This year, we are crafting a sustainable agenda that will lead us toward a green portfolio while promoting new technologies that favor digitalization. The cluster is building its decarbonization agenda through the “Road to Decarbonization 2030” initiative, with a spirit of social entrepreneurship. We are working with the necessary government entities, such as the Ministry of Labor, the Ministry of the Environment, the Ministry of Mobility, the Ministry of Urban Development and the Ministry of Public Works and Economic Development of the State of Mexico, to advance this initiative. The goal is for everyone to be involved in the creation of a collective agenda to which the industry is committed. It will also invite society and academia to learn about the new public-private initiatives to align and understand the impact of a sustainable agenda. Q: The State of Mexico is home to Ford’s electric vehicle manufacturing operations for the Mustang Mach-E. How are electrification trends advancing? A: Ford’s Mustang Mach-E had a significant impact in the state

Elisa Crespo

thanks to the two announced production lines. One is already up and running and the second is still under construction. For us, it has always been a priority to concentrate our

Director General and Adviser of the Automotive Cluster of the State of Mexico

efforts on electrification and we are already working to attract EV production. Bimbo is producing EVs for internal use while Tecnológico de Monterrey’s Center for Automotive Manufacturing Research (CIMA) provides services to OEMs in the state, such as BMW. The university has also collaborated in the development of public policies on mobility.

Collaboration, Key to Overcoming Industry Turmoil

About 30 percent of the companies in the Automotive Cluster of the State of Mexico are already involved in the production of auto parts and components for EVs. The pandemic forced us to accelerate digitalization so these are now everyday topics. But they will undoubtedly bring new challenges, such as addressing the skills gap in terms of specialized professionals. Q: The State of Mexico has a long-standing industrial heritage. How is the cluster focusing on developing strong R&D capabilities? A: As a cluster, we have invested a great deal of time to boost innovation and technological development in the region. We have pushed our companies to transfer knowledge regarding the production of materials, such as aluminum and polycarbonate, or for plastic injection molding. In recent years, we have brought together the best specialists in each subject so that they can pass on their knowledge and share trends with companies in the state. The cluster is revisiting its agenda to visit the main research centers in the world. In

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the past, we visited research centers in the UK and next year, if pandemic restrictions are lifted, we will visit centers in the Basque Country and Japan. The regions play a significant role in our state, so promoting the transfer of knowledge through alliances is a priority for us.

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from the

Q: How is Toyota transforming itself to become a mobility-oriented company? A: The global automotive industry is undergoing the kind of transformation that takes place once in a hundred years. Toyota has decided to become a mobility company, although automotive will continue to be at the core of our business. We understand that if a person can move, they can be happy and achieve the impossible. You will see more of our vision for achieving the impossible at the Olympic games. Our evolution toward becoming a mobility company is based in the four pillars of CASE: Connected, Autonomous, Shared and Electric. The electric element does not always imply a fully battery electric vehicle. At Toyota, we believe we should offer different electric options for our customers. Toyota now has four electrified vehicles. First there is the hybrid-electric vehicle (HEV). It is now in its third generation and serves markets that may lack charging infrastructure, such as Mexico. We also have a plug-in hybrid (P-HEV), which is similar to the regular hybrid and can be more efficient in reducing emissions. We have a battery-electric vehicle (BEV), which is the most popular in the media but will not necessarily dominate global markets. Finally, our Mirai model introduces a fuel-cell electric vehicle to the market, a hydrogen-based electric. This is a more sophisticated electrification strategy.

Luis Lozano

Q: What role do EVs play in Toyota’s global strategy toward carbon neutrality?

President of Toyota Motor de México

A: Different automotive players are introducing their own environmental goals. At Toyota, we introduced our environmental challenge in 2015 and we have been innovating technologies for over 40 years. The Toyota Global Challenge aims to reduce CO2 emissions by 90 percent by 2050

EVs Paving the Way for Carbon Neutrality

throughout the vehicle’s entire life cycle, from its manufacturing to its disposal. Our life-assessment cycle measures the entire carbon footprint of the vehicle. By 2025, we will have an electric twin of every one of our models in the world. By 2030, we will sell more electrified vehicles than ICE vehicles. We are happy about our results. Prius for instance has been the ultimate example of the role we play in the hybrid market. Q: What potential do EVs have in the Mexican market? A: The potential for producing these vehicles in Mexico is enormous; the challenge is to set the stage to make the most out of that potential. We have a really large market just next door that has introduced really ambitious electrification plans. US President Biden is strongly committed to tackling climate change and this situation will result in aggressive public policies that will accelerate electrification processes. This is a great opportunity but Mexico needs to do its homework and design reasonable public policies that are coherent with US policies to take advantage of these opportunities. This is relevant because manufacturing BEVs is not the same as

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manufacturing ICE vehicles. The former requires additional suppliers and components, so public policies should be comprehensive. This requires a long-term strategy as certainty is essential to investors. I hope the Mexican government takes this opportunity to bring electric vehicle production into the country.

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from the

Q: What are Nissan’s priorities regarding carbon neutrality? A: Globally, Nissan has announced that it will be carbon neutral by 2050. This showcases our commitment to the environment but also requires an improvement in vehicle technologies. One of the most important trends in the sector is electrification. There are two different markets for electrified vehicles. In emerging markets, electrification will arrive in a different way. There are three key players in electrification: the customer, OEMs and the government, which is in charge of developing the necessary infrastructure for electrified vehicles. In emerging markets, we have the technology and there is a clear need for these kinds of vehicles but governments are not ready to massively invest in electrification – not because they don’t want to but because they have other priorities. The best fit in terms of technology for markets such as Mexico is e-Power. Whereas hybrid vehicles have a big internal combustion engine and a small electric engine, e-Power has a larger electric motor that powers a small fuel engine. e-Power provides additional benefits as it does not need to be plugged in and has the performance of an electric vehicle at all times. e-Power’s prices consequently remain considerably lower than a fully electric vehicle. Q: What is your perspective regarding EV manufacturing in Mexico?

José Román

A: Nissan has the capacity to produce EVs in Mexico. However, it is important to take consumer demand into account because our production is driven by the domestic and export markets. We are

President and Director General of Nissan Mexicana and NIBU

conducting a variety of studies but the domestic market tells us that there is still a gap to be filled in terms of EV demand. Q: What is Nissan’s approach to the different levels of vehicle autonomy?

A Legacy of Technology

A: Nissan’s driving systems have led to significant breakthroughs. For example, the Altima and Maxima models already offer driver assistance systems that improve user experience. Technology is ready and improving and it will grow exponentially. The challenge is for countries and cities to implement the infrastructure and necessary legislation. We often think that autonomous vehicle technologies are aimed at young people but humans live for over 80 years and the elderly might also need driver assistance. Autonomous driving will also arrive gradually in different markets. As a brand, we have invested in autonomous driving for many years. Vehicle cameras and sensors were incorporated into our models eight or seven years ago. What typically happens is that these technologies are first implemented in high-end models and gradually they are introduced to entry-level models. Q: How is Mexico’s automotive market being influenced by global trends? A: Sedans continue to be relevant for the Mexican market, while in the US and the EU the crossover 4x4 is becoming more prevalent. Vehicles are getting smarter but the most important

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changes depend on the government. City, state and federal governments need to start designing mobility strategies that involve public transportation, bicycles and traditional vehicles. It is an ecosystem that requires close collaboration between the private and public sectors.

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from the

Q: JAC has climbed from 30th to 20th place in terms of sales, while almost doubling its market share from 2018 to 2020. What is behind this success? A: We did in three months what we thought we would develop gradually over two years. Our digital tool placed us in an advantageous position compared to others in the market, since we already had given it thought and structure before the pandemic hit. We further took advantage of the pause in online searches for vehicles to bolster our digital channels. While our competitors’ search results dropped around 30 percent, ours grew by 110 percent. If you talk when everyone else is silent, customers listen. Q: How is Giant Motors promoting the development of local suppliers amid the pandemic? A: We have a joint venture in EV manufacturing with Moldex. When we resumed operations, we made sure we had enough vehicles to supply our dealership networks. By having the plant here in Mexico, it became easier to adjust to market needs. We adapted to the circumstances to protect our suppliers and the Hidalgo government helped us to accelerate cash flows necessary to keep operations going. We also helped smaller suppliers to keep going.

Elias Massri

These kinds of actions result in an unprecedented level of loyalty. We have retained all of our suppliers from before the pandemic. We took a step further when supporting individual salespeople at dealerships, advancing commissions and other benefits even

CEO of Giant Motors Lationamérica

though they are not employed formally by Giant Motors but by dealership groups. Q: What role will EVs play within your market strategy?

Giant Motors Conquering the EV Market

A: Electrification is not coming, it is already here. We differ a little from other brands that have plans to introduce an EV portfolio in 2025 or 2030. In Mexico, the authorities have not set standards to restrict the use of ICE vehicles as other countries have. Meanwhile, we have what I call a cultural block, as there are many misconceptions regarding charging infrastructure, ownership costs and vehicle performance. We have vehicles with 500km of autonomy and even if a person were to drive 30km every day, a single charge could last more than a week. All JAC models have an electric twin, which means we offer the exact same model in an electric version. We do the same with spare parts and accessories, which makes life easier for dealerships, users and workshops. We have also introduced lastmile-delivery EVs too. EVs can provide substantial savings for individuals but the savings are even greater for corporate fleets. In March 2020, our sales represented 60 percent of all new EVs in the country, both in the light- and commercial-vehicle segment. Q: What are Giant Motors’ plans for the future? A: 2021 is a year to grow and consolidate our brand. Today, we

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have 41 JAC stores. We continue to grow our market share, while also supporting our partners in their areas of influence. We will continue to launch new products, our strategy involving digital channels and dealership training will make 2021 a really important year for the brand.

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Q: What is Circutor’s comprehensive offer for EV charging infrastructure? A: Even though the EV charger is the technological core of charging infrastructure, by itself it will not provide the necessary service if it is not part of a turnkey package. Beyond the entire charging station, Circutor also supplies the software for its management. In alliance with local experts, whom we train, we offer consulting services to determine the best business model and select the ideal spot for a charger. This service includes negotiations with the site’s host and project design, execution, start-up, integration of software and maintenance. Circutor is a one-stop shop. Q: How do you apply the experience gained across the world to the Mexican market? What are the similarities and differences? A: The efficient use of energy and the sustainable exploitation of green energies have been Circutor’s goals since its foundation almost 50 years ago. The experience obtained in Spain, the company’s country of origin, and in over 100 countries around the world assures our clients that the products they receive follow the highest quality standards and comply with the regulations imposed by certified entities.

Mónica Samudio

Besides being certified by virtually all the automotive companies that have an electrical solution in Mexico, we understand that each market is different and adaptation

Country Managing Director for Mexico and Central America, Circutor

is necessary. This is why we always have local alliances to complement our solutions, according to the market’s needs. Q: Some experts say there is not enough EV charging infrastructure, while others say it is enough for the

Circutor: One-Stop Solutions for EV Charging Centers

size of the market. What is your perspective? A: We are in the initial stage of using EVs in Mexico, which implies that the infrastructure is also beginning to take shape. Based on our experience in other countries, we know that the dilemma regarding who should invest first in the infrastructure for EV always arises. The government and electricity companies are usually the first to invest hand-in-hand with automotive companies and other private entities, such as fuel distributors, which are preparing for the energy transition. In the private sector, there are many other stakeholders interested in investing and at Circutor, we are ready to promote and support them. Q: How do public charging stations differ from privately owned chargers and how does Circutor support both segments? A: All of Circutor’s charging centers can be part of a private or public network. The differences may lie in the origin of the investment and its purpose. For instance, last-mile delivery companies are interested in developing an EV charging network along the routes used by their fleets. They also want software that reports on routes and mileage, among other operational parameters. Electricity companies have also invested in electricity brokerages to charge for the use of

recharging EV infrastructure, which is likely the future ofthis market Q: Real estate developers are offering EV charging infrastructure as an added value. What is Circutor’s strategy to meet the needs of both segments? A: We often promote these solutions through different media outlets and platforms. It is important that consumers understand the benefits of using green-energy vehicles; there is no need to pay for fuel, for example, and there are savings in fuel expenses. Electric vehicles also circulate without restrictions like the Hoy No Circula program, they enjoy free parking and can be submitted to federal emissions checkups at no cost. As this information reaches the end user, be it in the retail, office or residential segment, any EV charging project immediately becomes a more attractive investment. Q: During MAS 2021 ECHO, you mentioned that Circutor is working on battery innovation for cars. How is Circutor making a difference in this area? A: One of the largest challenges automakers face is battery innovation so vehicles can achieve greater autonomy and can reduce their total cost of ownership. The capacity of car batteries is increasing, which means that the charging time for the battery will be longer as well. Our task as manufacturers of chargers for these batteries is to develop increasingly powerful equipment. For instance, just a few years ago, the standard for fast charging was 50kW but in today’s market, we already see solutions of 100kW, 150kW, 350kW and more. Circutor is aware of this trend and will be launching a 350kW charger in 2022. Q: What are Circutor’s strategies for the Mexican market in the coming years? A: Our goal is to promote the rational use of energy and its management through our solutions and to continue the development of state-of-the-art solutions that adhere to market needs and that comply with quality certifications demanded by local and international laboratories. Circutor will continue working with automotive and electric companies to promote investments in infrastructure and with our allies so they can address market needs in the best way possible. Our goal is to consolidate Circutor as the top-of-mind brand for EV infrastructure in Mexico.

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Connected, Electric Vehicles | 93

Data: The New Link in the Automotive Supply Chain Data science is accelerating the technological transformation across different sectors and the automotive industry is no exception. From business analytics to understand consumer trends to machine learning models for autonomous vehicle systems, data has become an essential part of the automotive value chain. The very first step for building a machine learning model is data collection. Data is the raw material that will later feed the predictive model. The second step is to prepare the data. Often, data is not correctly labeled and needs to be “fixed” before introducing it to the model. The third step is to either design or apply an existing machine learning model that will process the data to later train that model so it performs the desired action as effectively as possible. The final step is to start making predictions and execute a certain set of protocols. These processes are usually considered a humanless process. However, academics from Oxford Internet Institute (OII), one of the world’s leading research institutes on data and society, highlight that “AI requires global supply chains and a wide range of workers, many in the Global South who increasingly do routine and routinized work to ensure that AI systems function.” Fellows from the OII have presented the “AI @ Work” report in 2020 that included a wide variety of case studies regarding AI applications across different industries and countries. “The aim of this report is to present a more comprehensive dialogue around the use of AI as more workplaces roll out new kinds of AI-enabled systems,” states the report. “At Google, the team responsible for the datasets that make the company’s voiceactivated assistant work, Pygmalion, relies on the ‘painstaking’ labor of annotating datasets by hand. Much of this work is done by temp workers. AI is marketed as automatic but it is often based on tedious behind-the-scene work.” Automotive Industry Impact Machine learning and AI applications are strongly linked to the evolution of the automotive industry. Autonomous vehicles essentially rely on artificial intelligence and machine learning for their development and depending on the level of autonomy, more complex algorithms are required for the vehicle to adequately respond to a given situation. According to the US National Highway Traffic Safety Administration (NHTSA), there are no available Level 4 or Level 5 autonomous models in the market. This dependence on machine learning also explains the importance of semiconductors for the automotive industry. IHS Markit notes in an extract of the “AutoTechInsight” report of 2020 the strong relationship between these technologies: “Autonomous driving is one of the key application areas of artificial intelligence (AI). Autonomous vehicles (AV) are equipped with multiple sensors, such as cameras, radars and lidar, which help them to better understand their surroundings. These sensors generate a massive amount of data. To make sense of this information, AVs need supercomputer-like, nearly instant processing capabilities. Companies developing AV systems rely heavily on AI, in the Read the complete article More about this topic

form of machine learning and deep learning, to process the vast amount of data efficiently and to train and validate their autonomous driving systems.”

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from the

Q: What role does the automotive industry play for Qualcomm? A: Qualcomm just celebrated 36 years as a company, which have been spent developing communication technologies. For 15 years, we have been focused on the automotive industry. In 2013, we were the first to bring 4G connectivity to vehicles in Mexico and a year later, this technology was activated in the country. No other company makes better telematics semiconductors than Qualcomm. Today, every time people connect their phone via Bluetooth to their car, they are most likely using a Qualcomm chip. Developing technology for the automotive sector is not the same as for the cellphone industry. On average, people change their smartphone every 24 months. This is not the case for a car, which has an average life cycle of 10 years. The automotive industry requires technology with a much longer life span and that involves longer development cycles. It takes approximately three years before a vehicle can be commercialized. In 2017, we launched the first C-V2X connectivity module, which is the technology that enables car-to-car connectivity. A year later, it became available and in 2019 it was massified. It is only just making its way into cars now. Q: How are vehicles the ‘most sophisticated mobile device’?

Ricardo Anaya

A: In the US, 91 percent of cars had some kind of connectivity by 2020, while around the world it stands at 41 percent. No one will be able to stop this trend because connectivity is required to offer services.Data commercialization in the automotive sector

Staff Product Manager of Qualcomm Mexico

is no longer just about selling a car. It is about everything people can do with the information and services that can be delivered through the car. When there is a powerful enough network to do that, services like audio, video streaming and video games can be offered through the car. C-V2X technology plays an important role

Adoption of 5G to Revolutionize Automotive Industry

for the whole industry as communication systems need an access point to transmit. With the C-V2X, access points are called RSUs (Road Site Units) and are placed on all roads to offer connectivity. We are working with Audi, PSA Group and other motorbike brands such as Ducati to implement this technology. These companies are keen to promote connectivity. The first-use case for automotive technology is safety, meaning that the system warns you if there is a traffic jam ahead, an accident or a blockage. Most accidents in the US, for instance, are because drivers are speeding on a freeway and suddenly there is a traffic jam. If you can reduce that through connectivity, many lives could be saved. If a person is driving behind a trailer, they can connect to their front camera to see when it is safe to overtake. Those are first-use cases but there are thousands of possibilities that this technology opens up. Today, when drivers see the “check engine” light come on, they take the vehicle to the dealership, which connects with it through a wire to see what happened. With this new technology, the connection is wireless and available everywhere. If the problem is minor, the user can make an appointment with the dealership and fix it later. If it is serious, the system notifies the user and provides

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the location of the nearest dealership. It also tells the dealership that the customer is on the way and exactly what is needed. This connectivity ecosystem generates a value-added service so that vehicles are always in the best condition and drivers arrive safely at their destination in the most resource-efficient way.

VIEW TOP Connected, Electric Vehicles | 95

from the

Q: HINO is the only commercial vehicle brand that has imported hybrid vehicles into the country. How are HINO’s global sustainability strategies translated to the Mexican market? A: We have been introducing hybrid units into Mexico since 2013 and historically we have sold over 1,450 hybrid units in the country. These products are aimed at a very specific segment of AAA companies that are committed to environmental protection and sustainability practices. Many of our customers in the food and beverages and last-mile delivery industries trust that hybrid units are ideal for their operations in urban areas. Hybrid vehicles rely mainly on the electric motor, so when a last-mile delivery unit needs to make continuous stops across the city it can save over 35 percent in fuel. Q: How have your customers received alternativepowered vehicles such as hybrids? A: We have a 100 percent trustworthy product. We have bet on hybrid vehicles in Japan since 1991 and we now are on the fifth generation of commercial hybrid vehicles. Thanks to our experience, customers are purchasing more hybrid units. Despite the pandemic, we sold 450 units in 2020. Our goal for 2021 is to sell 500 units. A client in Mexico has the largest HINO hybrid vehicle fleet outside Japan. This year, we will secure a client that will own the second largest HINO hybrid vehicle fleet outside of Japan, also

Oswaldo Cacheux

in Mexico. HINO continues to support its clients’ operations and there are a few milestones that must be achieved before reaching full electrification of commercial vehicles. Infrastructure, battery autonomy and fiscal benefits are some missing elements. In the

Commercial Director of HINO

meantime, hybrid vehicles are a necessary step. Q: How is HINO adjusting its operations toward the recovery of its manufacturing plant?

HINO: Hybrid Expert on Commercial Vehicles

A: Our facility in Silao, Guanajuato, manufactures our Series 500. Because of the pandemic, we saw some shortages but we are returning to pre-pandemic-level supplies. During 1H21, acquiring supplies for some vehicles remained difficult but we are betting that during the four last months of 2021 we will have enough units to satisfy market demand. We are also preparing for the potential enforcement of NOM-044, which will require vehicles to adhere to Euro VI/EPA 10 technologies, although we agree with ANPACT that these technologies should coexist with older technologies. Bumper to bumper, our vehicles are 100 percent HINO. Most of the components are HINO brands, which allows us to offer lifetime warranties. We have sought to source some supplies, such as batteries, tires and steel. Our Series 500 units have enjoyed a good acceptance among our customers, which are demanding larger volumes for the coming year. Consequently, we will explore the possibility of expanding our manufacturing capacity in Silao. Q: What role does HINO Mexico play within HINO’s global strategy? A: In the short-term, we will increase our production capacity, not

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only of our Series 500 but also of the Series 300, as we continue to face supply shortages. This will allow us to advance our position in the commercial vehicle segment. In the midterm we will expand our product portfolio by launching new lighter class-3 models and increasing the capacity of our current models.

Conference

Highlights Connected, Electric Vehicles | 96

ars have undergone a significant transformation toward the digital as manufacturers have increasingly fitted them with screens and sensors. However, the industry has been waiting for years to offer a truly interconnected service ecosystem. The

tool it needs to accomplish that is almost here: 5G technology. 5G will enable US$13.1 trillion in global sales activity by 2035, according to Qualcomm. “All industries are going to capitalize on this technology,” says Ricardo Anaya, Staff Product Manager of Qualcomm Mexico. “The automotive industry has been waiting for a network like 5G to be able to offer new services like autonomy and cloud access.” The emergence of 5G networks is essential for the 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,” says Anaya. With the speed capabilities that 5G will bring (over 100Mbps), “working in the cloud will be like working in the internal memory of a computer,” says Anaya. 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

Vehicle Connectivity Increasingly Closer Thanks to 5G Ricardo Anaya Staff Product Manager of Qualcomm Mexico

decision-making” in autonomous processes. 5G offers an extremely low latency rate, adds Anaya. “This migration will enable millions of devices to be connected.” “The cornerstones of 5G are more bandwidth, better latency and more user capacity. When implementing 5G, these three pillars and the new frequencies on which this technology works, allow for network deployments that are very different from what we are used to,” Anaya told Mexico Business in an interview in July. As the network grows, powerful processing centers located close to the connections will enable new forms of collaborative work. “You can make simpler devices with more battery life,” says 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 in Mexico,” says 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.” This impact will be reflected beyond the improvements in the services offered by companies. According to analysts from the firm IDC, during the first year 5G networks are deployed in Mexico, they will trigger a value of almost MX$90 billion (US$4.4 billion). The transformation that 5G will bring to the automotive 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,” says Anaya. Through the cloud and 5G, vehicles will also have the ability to

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connect in real-time to their surroundings. This, Anaya explains, will open the way for a driver to be warned if another vehicle is approaching from three blocks away, preventing accidents.

Electric Vehicle Trends in the Mexican Market — Share in total vehicle sales BEV

HYBRID AND ELECTRIC VEHICLE SALES (units)

2016

2017

2018

2019

PHEV Non-PHEV

2020

2021

10,000

2,000

5.28%

3.81% 2.81%

2.26%

2.84%

2.46%

2.02%

1.59%

1.64%

1.19%

1.07%

0.77%

0.70%

0.66%

0.57%

0.67%

0.62%

0.26%

4,000

0.52%

6,000

1.29%

8,000

1.41%

6.00 4.80 3.60 2.40 1.20 0

0 1Q

PUBLIC CHARGERS PER EV IN 2020 South Korea

0.47

Advances in CASE technology and its adoption, coupled

Chile

0.33

with global decarbonization efforts, have led to steady

Mexico

0.29

growth in electric vehicle sales and production. Ongoing

Indonesia

0.25

research promises to deliver higher-capacity batteries with

South Africa

0.18

a much faster charging time, which will further boost the

China

appeal of electric mobility. Despite the pandemic, electric

World

0.16 0.12

Japan

0.09

sales results, already representing 5.28 percent of total

France

0.09

sales in 2Q21.

Brazil

0.09

Spain Europe

0.08

Legislation in this area remains a challenge as incentives are

0.08 0.07

the benefits of green technologies will soon outweigh cost-

Canada

0.06

vehicles continue to gain ground in Mexico’s overall vehicle

lacking to really boost electric vehicle adoption. Nevertheless, related concerns. “Today, an electric vehicle is way cheaper in the long term and offers competitive costs for companies and

0.05

governments, which is one of the reasons that allowed sales

0.04

India 0

0.10

to grow despite the lack of incentives,” said Rodrigo Centineo, 0.20

0.30

0.40

0.50

HYBRID AND ELECTRIC VEHICLE PRODUCTION IN MEXICO (units) 2017

CTO of E•DRIVE.

— Share in total

vehicle production

2018

Ford Fusion Hybrid Lincoln MKZ Hybrid

2019

Mustang Mach-E GML X150 EV

2020

2021

30,000

2.00 1.50 1.00 0.50

3,750

1.80%

0.20%

7,500

3.00 2.50

0.70%

1.20%

1.30%

2.60%

3.10%

2.20%

11,250

0.90%

1.80%

1.50%

15,000

1.60%

18,750

1.70%

22,500

1.80%

26,250

2.60%

3.50

2.20%

Connected, Electric Vehicles | 97

Infographic

0 1Q

Source: INEGI’s Light Vehicle Data, International Energy Agency

Conference

Connected, Electric Vehicles | 98

Highlights

Telematics Are Crucial for Smart Fleet Management Israel Escutia Director General of Invarat México

Kent Bjertrup CEO Mexico of ALD Automotive

Mauricio Medina CEO of TIP Mexico

Fernando Ardura

elematics 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, say industry experts. “Telematics is about connected cars, which will collect data to monitor everything related to the vehicle, from its location to driver behavior. They even provide the possibility to monitor the condition of the vehicle. We can collect all this data and offer it so customers can make safe, well-informed decisions,” says Kent Bjertrup, CEOMexico of ALD Automotive. “Telematics is a reality. The technology is already here; it is just about implementing it correctly. It is profitable to use it; the real

Chief Business Officer of Traffilog

cost would be not to do it. If you are going to use telematics,

Marco Lizarde

you need to have a complete implementation program rather

Business Unit Consultant

than only buying the systems. A GPS is no longer enough to know everything about your fleet,” says 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, as well “Telematics is already a reality in most trucks in Mexico. But in countries such as the US it is no longer an alternative but an obligation. In cargo transportation, telematics helps prevent accidents. It detects system failures, routes, traffic and driver behavior in real time. Telematics became crucial to offer a better service to customers while reducing costs and boosting efficienty. It should not be seen as an expense but as an investment,” says Mauricio Medina, CEO of TIP México. Telematics not only helps when vehicles are on the road but also while the fleet is parked at the company or in shipping terminals, where vehicles could also suffer damages, says Rafael Lajud, Director General of Invarat. The integration of the services offered by telematics is key for companies to make better decisions, adds Lajud. Digitalization is drastically changing the logistics industry. Fleet 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 send emails. While the opportunities are many, the technology also comes with challenges for companies. “Mexico presents many challenges, with a very complex road network, security issues and many suppliers. The key to achieving perfect shipping is standardization. This would lower costs and achieve consolidation, while a clear legal framework would be a real win-win for every player involved. Standardization will boost investment,” says Marco Lizarde, Business Unit DHL Consultant. The four main pillars for a proper integration are data analytics, data master, software and good transportation practices, adds 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.” Some businessowners, carriers and fleet management leaders often have a short-term vision regarding telematics and the implementation of complex technology systems, another hurdle the industry needs to overcome. “We have to be more constructive when explaining the benefits of these systems. We should not offer our products as small, separate services but as a complete and integral solution for fleet management companies that will help them reduce costs and maximize profits,” says Lajud. The correct use of telematics also requires clear goals and pathways to 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,” says Bjiertrup. An example of the wide use of telematics can be found in the insurance industry, where the technology is ubiquitous across the world to help balance the cost of insurance policies. “If (policies) 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,” says Ardura. Telematics applied to the insurance business analyzes 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 fair rates. While investing in telematics systems could be costly for companies, not doing it could be worse. “You have to measure to improve,” says Medina.

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VIEW TOP from the

Connected, Electric Vehicles | 100

Leveling Up Mexico’s Charging Infrastructure Q: How has the landscape for electric mobility in Mexico changed?

Rodrigo Centineo

DL: The most significant change is that charging services are becoming more and more of a commodity. Market diversification is proof of the first signs of industry consolidation at all levels of the electric mobility ecosystem and value chain, resulting on new

Founding Partner and CTO of E•DRIVE

business opportunities in electricity supply, charging networks, fleet electrification, last mile delivery, public transport and battery handling, recycling and second life projects. Q: What best practices can Mexico follow to foster electric mobility? RC: As we discussed during Mexico Automotive Summit, Mexican dealerships include charging and installation with every new vehicle sale. This makes it easier for the user to transition to e-mobility. The industry in Mexico has understood that change can be difficult and rather than creating additional troubles to their customers, it needs to make things easier. Q: Previously, you highlighted the potential of

Daniel López

creating robust systems to manage the power grid. How have these projects advanced? PC: We have advanced to the point of connecting our network

Founding Partner and CCO of E•DRIVE

at the national level. We now operate the largest smart charging installed base in Mexico in real time and we are monitoring our own chargers and those of our customers. Fast and Ultra-Fast Charging will play a different role as they require a higher investment because they need an electric station. The charger costs between US$30,000 and US$90,000 and the infrastructure is at about US$50,000, so business models will need to evaluate ROI schemes. RC: In 2020, we increased the number of charging points connected to our platform by 200 percent. This is a really important milestone for the Mexican market and a step in the right direction for controlling the charging points. Q: How does the lack of fiscal incentives for electric vehicles affect their market?

Pedro Corral

RC: Today, an electric vehicle is way cheaper in the long term and offers competitive costs for companies and governments, which is one of the reasons that allowed sales to grow despite the lack

Founding Partner and COO of E•DRIVE

of incentives. The Mexican government has yet to take an active role in promoting electric vehicles and renewable energies. That being said, some incentives are in place for those taking a leap of fate into e-mobility such as exemption of local taxes, emission control verifications, toll discounts and preferred parking spaces. We receive calls every day from companies inquiring about the

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advantages of electric fleets. Even with minor incentives, the technology provides significant economic and environmental benefits for companies and consumers.

Connected, Electric Vehicles | 101

How Are Brands Fostering the Adoption of EVs, HEVs and PHEVs?

The electrification of the automotive sector is advancing in Mexico but at what speed? Brands have different strategies to promote a faster adoption of electrified vehicles based on their strengths and the needs of the Mexican market. Leaders from Mitsubishi, Hyundai and JAC discuss their strategies to speed up electrification.

In Mexico, sales of hybrid vehicles grew 200 percent between 2016 and 2020. Our Outlander PHEV was the second-bestselling model within the plug-in hybrid segment. Our global targets include reducing carbon emissions by 40 percent (in comparison to 2010’s emissions) and electrifying 50 percent of our portfolio by 2030. Electrification in Mexico will depend on the will of the population. Large OEMs have invested millions in these products but a series of incentives, regulations and advocates are necessary to increase their prevalence. We need to create a set of guidelines to foster the growth of these segments, rather than rely on the isolated efforts of OEMs.

Jorge Vallejo Director General, Mitsubishi Motors de México

Hyundai’s projects aim to benefit our customers. To do so, clean and greener technologies are essential. In February 2021, we launched IONIQ 5 in North America, a 100 percent electric vehicle that belongs to the IONIQ sub-brand that includes both 100 percent electric vehicles and plug-in hybrids. Hyundai plans to invest US$7.4 billion to build a plant in North America to manufacture electric vehicles in the region, showing that despite being a South Korean brand, Hyundai is prioritizing this region. IONIQ is a fully hybrid Hyundai model and since its launch in Mexico in 2017, we have commercialized 3,000 units. The model has been very well received in the country and has shown that

Juan Carlos Ortega

the trend of acquiring this type of vehicle has been growing. Our next priority in Mexico is to expand our hybrid product portfolio.

Marketing Director México, Hyundai

Mexico is only lacking a market-adapted portfolio of EVs and JAC is committed to deliver them to customers. The technology already exists and JAC globally has worked on this technology for decades. But taboos about EVs need to be overcome. Research shows that 95 percent of EV drivers do not go back to an ICE vehicle. As a Mexican company focused on the local market, we urge users to experience driving an EV. Moreover, our electric twin strategy allows customers to choose the electric version of their favorite ICE vehicle. Not many parties are selling EVs in Mexico because they are not as profitable yet and there is not enough infrastructure to support them. But JAC

Isidoro Massri General Manager of JAC México

is adapting its strategies to the Mexican market. We are proud to say that today, JAC has 64 percent of the market share of EVs sold in the country.

Level 5 Autonomy, Still a Long Road Ahead 05/12/2021

We are here to support Mexico’s Economic Recovery: Uber Gretta González | General Manager of Shared Rides at Uber México

Beat Mexico: Pushing the Boundaries of Ride Hailing Enrique Mendoza | General Manager México of Beat

Webfleet Solutions: Reducing Operating Costs Manuel de la Torre | General Manager of Webfleet Solutions

Educating Engineers for the EV Revolution: Masare Motors Antonio Pascual | VP, Masare Motors

The Business of Connected Vehicle Data 06/01/2021,

What Role do Batteries Play in the Cost of an EV? 05/13/2021,

Nissan and BMW Alliance: MX$100 Million and 700 Charging Stations 04/08/2021 ,

BBVA Mexico to Offer Preferential Rates for EVs 04/27/2021

Jalisco Inaugurates its First Electric Bus Line 07/12/2021

Insurer Zurich México Joins EV100 Initiative 05/10/2021

Acronyms 3PLs

Third Party Logistics

GDP

Gross Domestic Product

ACES

Aftermarket Catalog Exchange Standard

General Motors

AMAVE

INA

National Auto Parts Industry

Mexican Association of Vehicle Leasing Companies

INEGI

AMDA

National Institute of Statistics and Geography

Mexican Association of Automotive Distributors

ISO

AMIA

Intraconal Organization for Standardization

Mexican Association of the Automotive Industry

KPI

Key Performance Indicators

ANPACT

National Association of Bus Truck and Tractor Manufacturers

LVC

Labor Value Content

MBN

Mexico Business News

ARIDRA

National Association of Representatives Importers and Distributors of Auto Parts and Accessories

NAFTA

North American Free Trade Agreement

NOM

National Mexican Norm

BEV

Battery Electric Vehicles

OEM

Original Equipment Manufacturer

CASE

Connected Autonomous Shared and Electric

PEMEX

Mexican Petroleum Company

CLAUT

Nuevo Leon Automotive Cluster

PHEV

Plug-in Hybrid and Electric Vehicles

CLAUGTO

Guanajuato Automotive Cluster

PIES

Product Information Exchange Standard

CLAUZ

Automotive Cluster PueblaTlaxcala Region

R&D

Research and development

CONACYT

National Council for Science and Technology

ROI

Return of Investment

RVC

Regional Value Content

EPA

United States Environmental Protection Agency

SME

Small and Medium sized Enterprise

ERP

Enterprise Resource Planning

SUV

Sport Utility Vehicle

Electric Vehicles

USMCA

United States-MexicoCanada Agreement

FCA

Fiat Chrysler Automobiles

VAT

Value Added Tax

FDI

Foreign Direct Investment

Advertising Index Lavartex 1

3M 53

Infor 5

MexicoView 59

American Industries 14

Universal Robots 64

WTC San Luis Potosi 20

Universal Robots 72

Evonik 25

Mexico Business Publishing 79

GarantiPlus 33

Alian Plastics 84

Mexico Business News 40

Quaker State 92

3M 45

Traffilog 99

Index 3M 51, 52, 60

Infor 77, 78-79

ABB 69, 77, 81

Invarat 98

ALD Automotive 98

Kia 13

Alian Plastics 55

KPMG 39-40, 42

AMDA 13, 14, 23, 103

Material Technology 3, 57

American Industries 12

Mazda 10, 38

AMIA 4, 15, 103

Mercedes-Benz 11, 38

ANPACT 4, 13, 14, 16, 37, 95, 103

Michelin 29, 42, 57

Audi 4, 24, 27, 38, 43, 67, 86, 94

Mitsubishi Motors 23, 101

Automotive Cluster Network 13, 21, 35

Nissan 4, 7, 8, 14, 22, 27, 38, 70, 89, 102

Automotive Cluster of the State of Mexico 87

PPG 49, 57, 61

AWS 66, 77

Qualcomm 73, 75, 77, 81, 94, 96

BMW 27, 38, 55, 62, 76, 86, 87, 102

San Luis Potosi Automotive Cluster 28, 35, 57

Circutor 91, 92

SAP 76, 80

CLAUZ 36, 67, 103

Scania 37

Covestro 56, 63

Siemens 66, 68, 73, 74, 81

Daimler 27, 37, 62

SKF 70

DHL 99

Sonavox 36, 42

DuPont 47, 48, 57, 61

Stant 31

E•DRIVE 100

Timken 51

Evonik 58-59, 62

TIP 98

FCA 103

Toyota 4, 7, 10, 22, 27, 33, 38, 51, 54, 80, 82, 86, 88

Ford 27, 38, 51, 70, 74, 87

Traffilog 98

GarantiPlus 32, 33

Tridi 54, 60

Giant Motors 86, 90

Universal Robots 71-72, 77

GM 27, 34, 38, 43, 86, 103

Vera y Asociados 80

Haldex 41

Volkswagen 4, 7, 9, 22, 27, 38, 43, 51, 66, 67, 70, 82, 86

HINO 95

Volvo 23, 37

Honda 27, 38

Wieland Metal Services 50

Hyundai 23, 33, 74, 101

WTC San Luis Potosi 19-20

IHS Markit 17, 27, 93

Yanfeng 30

INA 4, 7, 35, 103

Photo Credits Cover Audi

52 3M

4 KIA

55 Alian Plastics

8 Nissan Mexicana and NIBU

56 Covestro

9 Volkswagen Brand Mexico

57 MAS ECHO 2021

10 Toyota Motor de México

58 Evonik

11 Mercedes-Benz

60 Tridi

12 American Industries

61 DuPont, 3M, PPG Industries

15 AMIA

62 Daimler AG

16 ANPACT

63 Covestro

17 IHS Markit

67 CLAUZ

19 WTC San Luis Potosi

68 Siemens

21 CLAUT

69 ABB México

22 Nissan Mexicana and NIBU, Volkswagen Brand Mexico, Toyota Motor de México

70 SKF México 71 Universal Robots

23 KIA 75 Qualcomm Mexico 24 Audi 77 MAS ECHO 2021 28 San Luis Potosi Automotive Cluster 80 MAS 2021 ECHO 29 Michelin México 81 Qualcomm, ABB México, Siemens 30 Yanfeng Automotive Interiors Mexico 82 Daimler AG 31 Stant 83 Nissan 32 GarantiPLUS México 87 Automotive Cluster of the State of Mexico 35 San Luis Potosi Automotive Cluster 88 Toyota 36 Sonavox México 89 Nissan Mexicana and NIBU 37 MAS ECHO 2021 90 Giant Motors 39 KPMG 91 Circutor 41 Haldex 94 Qualcomm Mexico 42 Michelin, Sonavox, KPMG 95 HINO 43 Audi 96 Qualcomm 44 Daimler AG 98 MAS ECHO 48 DuPont 100 E•DRIVE 49 PPG Industries 50 Wieland Metal Services Queretaro

101 Mitsubishi Motors de México, Hyundai, JAC México

51 Timken de México

102 KIA

Credits Senior Journalist & Industry Analyst: Alejandro Enríquez Editor: Alicia Arizpe Senior Editor: Mario Di Simine Managing Editor: Alejandro Salas Publication Coordinator: Naomi León Content Partnership Coordinator: Alexa Villarruel Content Partnership Coordinator: Miguel García Graphic Designer: Tania Aguiñiga Graphic Designer: Marcela Muñoz Ledo Senior Graphic Designer: Mónica López Design Director: Marcos González Web Development: Omar Sánchez Collaborator: Antonio Gozain Collaborator: Andrea Villar Director General: Jeroen Posma

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