BMW Is Pouring EV Money Into Mexico. There’s a Big Roadblock.
Proximity to the U.S. has been a mixed blessing for Mexico historically. The mix got a bit more positive, or should have, with last year’s U.S. Inflation Reduction Act. This deftly misnamed legislation provides subsidies up to $7,500 for U.S. buyers of electric vehicles, providing they are largely built in North America—Mexico included.
That could catalyze a new flood of investment for a Mexican auto sector that already exports more than $100 billion annually, mostly North. Bayerische Motoren Werke (ticker: BMW BMW –1.70% . Germany) indicated as much on Feb. 3, pledging 800 million euros ($856 million) to expand Mexican production into the EV age.
“We have an opportunity that we haven’t had all century, and there is no way we will let us pass it by,” Mexican Foreign Minister Marcelo Ebrard promised.
Unfortunately, his boss, President Andres Manuel Lopez Obrador, seems bent on doing just that. AMLO, as the 69-year-old leader is known, “grew up with the standard view of the 1970s and ‘80s: very Mexico-centric and with a strong role for the government,” says Earl Anthony Wayne, a former U.S. ambassador to Mexico, now co-chair of the Wilson Center’s Mexico Institute.
One pillar of that view is the country controlling its own energy resources. AMLO extended that to electricity, pushing through a law loaded with preferences for state monopolies Petróleos Mexicanos and Comisión Federal de Electricidad.
Car manufacturing requires lots of power, which companies are not sure Pemex and CFE can provide. Auto makers also want renewable energy to meet their global green commitments. Not a high priority for the state firms or their president. “While the rest of the world is racing toward renewables, Mexico has created complications,” says Amy Glover, head of Mexico City-based consultant Agil-e.
That could be holding up billions more in EV investment, says Alejo Czerwonko, chief investment officer for emerging markets Americas at UBS Global Wealth Management. “We’d be seeing many times the interest if there were actively supportive state policies,” he says.
Foreign minister Ebrard recently told journalists EV champion Tesla (TSLA) is “very close” to a Mexican announcement. The company has kept mum.
Some state governors are more enthusiastic about auto investment—particularly Samuel Garcia, the 35-year-old leader of Nuevo Leon, which includes the automotive nexus of Monterrey. “He’s been quite clever in negotiating with AMLO,” says Manuel Montoya Ortega, who heads a regional industry lobby. Mexican law puts power generation and distribution squarely under federal control, though.
AMLO himself is slated to leave the stage in December 2024, when his constitutionally mandated single term ends. Ebrard looks to be staking turf as a pro-business successor. No one is holding their breath for a policy sea change, however. “Nationalization of energy resources has been central to Mexican identity,” Glover says. “The energy transition is also a psychological transition.”
AMLO, in power since 2018, has outperformed expectations in other ways. His “republican austerity” has shrunk both budget and current account deficits. (Remittances from the U.S. have nearly doubled, cushioning his domestic cutbacks.) The peso’s value has risen, a global rarity during four years of dollar ascendancy. That’s made Mexico a fixed-income, if not equity, favorite. “On the broad level, AMLO is pragmatic,” says Yong Zhu, portfolio manager for emerging markets debt at DuPont Capital Management.