(Bloomberg Opinion) — The combustible engine’s end date is firming up: General Motors Co., the largest of the Detroit big three, plans to stop making gas-driven cars by 2035. The global green shift goes beyond vehicles, as hundreds of companies and a growing number of nations pledge to neutralize their carbon footprints. Mexico’s natural bounty in alternative energy sources and its close industrial ties to the United States give it advantages going into this new era. Yet Mexico’s government is squandering them by rejecting the green revolution just as it picks up its global pace.
Mexico’s manufacturing base rests heavily on autos. The factories of Ford Motor Co., GM, Nissan Motor Co., Volkswagen AG, Toyota Motor Co., and other companies fill its industrial heartland and churn out nearly 4 million vehicles a year, making Mexico the world’s sixth biggest producer. Global parts-makers have followed their clients: Aptiv Plc set up with GM, Visteon Corp trailed Ford, and Denso Corp came with Toyota. Mexico developed sophisticated homegrown suppliers, too: Brake and suspension maker Rassini SAB, chassis provider Metalsa SA, powertrain manufacturer Nemak SAB, as well as hundreds of smaller shops that make the basic nuts and bolts assembled into seats, dashboards, mechanical systems and more. The sector is now Mexico’s biggest export driver by far, bringing in $100 billion in annual revenue.
Electric vehicles will upend this manufacturing base. Mexico could shine: Ford has already announced it will assemble its electric Mustang in a factory just outside the capital city. But the nation’s continued industrial prowess isn’t assured. Mexico’s auto plants dominate in soon-to-be obsolete engines and transmissions. Its parts industry will shrink as new cars use far fewer of them. And electric vehicle production is more likely to be automated, reducing Mexico’s cost advantage when building new operations.
Mexico’s auto industry will have to remake itself. In this they face stiff competition. The nation could theoretically become a big maker of electric batteries and fuel cells. Yet even as other governments spend billions to land these technologies and manufacturing facilities, Mexico isn’t joining the race. The European Union is underwriting an entire electric vehicle battery supply chain, from mining and refining of rare earths to making battery packs and recycling and disposing of them. China has spent billions in subsidies that favor its own producers. Japan, India, and the U.K., and even the U.S., are all wooing players in the nascent industry with financial incentives and support.
In contrast, Mexico has no national plan, much less financial incentives to set up shop. Sure, Sonoran lithium mines stand to make a bundle. But with increasing uncertainty about the rules of the road for investors, at this point Mexico’s auto manufacturers will be lucky to keep assembly work and jobs.
Mexico has limited the size of its electric vehicle consumer market too, with the government doing next to nothing for drivers looking to make the jump. There are no federal tax breaks or cash back to buy new electric cars. Rather than building out a national network of charging stations, it is doubling down on gasoline self-sufficiency, investing in costly refineries for the fuel of the past. And the government has no meaningful plans to replace fume-spewing buses with their zero-emissions brethren.
The global green electric shift goes beyond vehicles. A quarter of the Fortune 500 companies have promised to be carbon neutral by the end of the decade. France, Germany, Japan and others are promising their whole nations will meet net zero emissions by 2050.
As CEOs and policymakers the world over hasten to make a green transition, Mexico’s energy matrix is becoming dirtier and less stable by the day. It didn’t have to be this way. Mexico had been an emerging economy leader on climate issues, one of the first to sign onto ambitious targets to reduce business as usual emissions this decade. Its 2013 energy reform opening the sector to private investment helped make this reality possible, as some $26 billion dollars flowed into solar, wind, geothermal and other renewable projects. As many operations came on line, renewable output doubled and consumer electricity prices fell.
Yet now this situation is moving in reverse. The government has ended auctions to bring on more renewable projects. It tried to halt the final testing needed for new clean energy plants to come online. And President Andres Manuel Lopez Obrador and his allies are pushing through legislation that would effectively kill existing renewable investments by favoring more expensive and dirtier energy sources. Combined with Mexico’s backsliding on its Paris Accord commitments, such measures will make Mexico a pariah among its more environmentally focused peers. And carbon-based taxes on imports in many markets — starting with Europe — could erode if not end Mexico’s manufacturing advantages.
Mexico could still join in and benefit from a green transformation. But it will require an about face by the Lopez Obrador administration. Autos are a place to start, by leveraging its strong existing international footprint and local supply chains. With the global race on to build the next car and control its technologies, the government will need to help attract factories and production. It could also quickly reverse its choices to double down on an oil- and coal-based energy strategy, and instead ramp up solar, wind and other renewables. But these moves will need to come fast. If they don’t, the prospects will be grim not just for Mexico’s manufacturing sector, but also for the health and fortunes of its neighbors and the global fight against climate change.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shannon O’Neil is a senior fellow for Latin America Studies at the Council on Foreign Relations in New York.