The global auto industry is in the middle of one of its biggest transitions in decades. Rising labor costs in Asia, shifting trade policies, supply chain disruptions, and the rapid move toward electrification are all forcing manufacturers to rethink where and how they build vehicles. Increasingly, the answer points south of the U.S. border.

The automotive industry in Mexico has long been an important player in global manufacturing, but today it is being reshaped by the nearshoring trend. Automakers are not only building more cars in Mexico but are also transforming the country into a strategic hub for supply chain resilience, regional market access, and the future of electric mobility.

A Snapshot of Mexico’s Automotive Strength

Mexico consistently ranks among the world’s top vehicle-producing nations. In 2024, the country manufactured nearly 4 million light vehicles, most of which were exported to the United States, Canada, and Europe. That scale puts Mexico in league with some of the most competitive global production centers.

But the story goes deeper than output. Mexico has developed dense automotive clusters in key manufacturing locations like Puebla, Guanajuato, and San Luis Potosí, where companies such as Volkswagen, Audi, GM, Stellantis, Mazda, and Ford have invested in major plants. These clusters create efficiencies in logistics, attract suppliers, and support a skilled workforce that now numbers in the hundreds of thousands.

Add in an extensive network of free trade agreements, including the United States–Mexico–Canada Agreement (USMCA), and Mexico’s position as an automotive powerhouse becomes clear.

Why Move Automotive Manufacturing to Mexico?

1. Geography and Trade

The most obvious advantage is proximity to the U.S., one of the largest automotive markets in the world. Vehicles and components can move quickly by road or rail, cutting shipping times dramatically compared with Asia. For automakers under pressure to shorten lead times and reduce logistics costs, that’s a significant advantage.

Trade agreements amplify this benefit. Under USMCA rules of origin, vehicles with higher North American content qualify for tariff-free trade. At the same time, programs like IMMEX allow manufacturers in Mexico to temporarily import materials and components without paying duties or VAT, further lowering costs and improving cash flow.

2. Foreign Direct Investment Momentum

Nearshoring has sparked a wave of foreign direct investment into Mexico’s automotive sector. In recent years, tens of billions of dollars have been committed to new plants, expansions, and EV-related projects. For example, Volkswagen has invested heavily in Puebla to prepare for future electric models.

This inflow of capital isn’t just about building more vehicles. It’s about upgrading capabilities, from advanced engines and transmissions to high-voltage batteries and EV electronics.

3. A Skilled and Growing Workforce

Mexico’s workforce has become one of its greatest assets. Technical training programs and partnerships between industry and universities are helping to develop talent for both traditional automotive manufacturing and the emerging electric vehicle sector.

For automakers, this means access to engineers and technicians who can handle everything from lean manufacturing practices to complex electronics assembly. And because automotive plants are clustered in key states, local ecosystems support efficiency and collaboration.

4. The Push Toward Electrification

Perhaps the most transformative shift is happening in the electric vehicle space. Automakers are preparing for a future where hybrids, plug-in hybrids, and full EVs dominate production.

Mexico is positioning itself to play a central role in this transition. While supply chains for batteries and advanced components are still developing, the direction is clear: EV investments are flowing into Mexico at a faster pace than ever before. For example, in 2023, BMW announced an €800 million investment in its San Luis Potosí facility to build a lithium-ion battery assembly center, significantly expanding its capability ahead of full electric vehicle production in 2027.

What This Means for the Future of the Automotive Industry

The automotive industry in Mexico is evolving from a cost-competitive production base into a strategic hub for the Americas. Nearshoring ensures that companies can reduce their exposure to global shipping risks, improve responsiveness to consumer demand, and align with trade rules that increasingly favor regional supply chains.

Looking forward, several priorities will shape success:

• Expanding EV capacity, including batteries, motors, and electronics.
• Strengthening infrastructure, both physical and digital, to support efficient trade.
• Building a future-ready workforce with skills for high-tech manufacturing.
• Maintaining policy stability so that companies can invest with confidence.

Automakers who align with these priorities will not only improve margins but also secure long-term competitiveness in North America’s evolving automotive landscape.

Challenges on the Road Ahead

Nearshoring has undeniable momentum, but the transition isn’t without obstacles.

• EV Supply Chain Gaps: While Mexico excels at internal combustion engine components, battery and EV component production still rely heavily on imports, especially from Asia. Localizing these supply chains will be critical.
• Policy and Tariff Uncertainty: Shifting tariffs, both in the U.S. and Mexico, create uncertainty for long-term planning. Compared with Asia, Mexico offers stability, but only if companies stay ahead of regulatory changes.
• Workforce Development: As the industry transitions to EVs and more complex electronics, training and education will need to keep pace with demand for highly skilled labor.

These challenges don’t diminish Mexico’s potential; they underscore the need for careful execution. Manufacturers that prepare for these realities and work with experienced partners can turn obstacles into opportunities and fully capture the advantages of nearshoring in Mexico.

How NAPS Supports Automotive Manufacturers

As opportunities expand, so do the complexities of operating in Mexico. Automotive companies must navigate labor law, customs compliance, tax policy, environmental regulations, and shifting trade requirements, all while staying focused on production goals.

That’s why many manufacturers choose to work with a trusted local partner, one that understands the regulatory landscape and operational requirements unique to Mexico. NAPS has been that partner for over 30 years, helping global manufacturers establish and optimize operations in Mexico through our shelter services and compliance management expertise. For automotive clients specifically, our support includes:

• Regulatory navigation: Ensuring compliance with USMCA rules of origin, customs processes, and Mexican labor law.
• Operational efficiency: Setting up and managing plants under lean manufacturing standards to maximize output and reduce waste.
• Workforce development support: Assisting with recruiting, training, and HR management so companies can scale with confidence.
• Strategic guidance: Helping manufacturers identify the best regions (like Bajío, Puebla, or Baja California) to align with supply chain and logistics needs.

In an industry as complex and fast-moving as automotive, the right local partner can make the difference between a costly misstep and a successful long-term investment.

Your Roadmap to Automotive Success in Mexico

The automotive industry in Mexico sits at the center of a global shift. Nearshoring is no longer a tactical response to disruptions but a strategic reorientation of the supply chain. Manufacturers who commit to Mexico gain shorter lead times, improved cost control, access to skilled labor, and alignment with the North American market’s future demand for EVs.

But opportunity comes with complexity. By addressing infrastructure, workforce, and regulatory challenges, and by partnering with experts who understand the terrain, companies can unlock Mexico’s full potential as the automotive hub of the Americas.

Ready to explore what nearshoring in Mexico could mean for your automotive operations? Contact NAPS today to start building your strategy.