Di Si, who took office in September after boosting the brand’s sales in South America, has the vision of taking advantage of the capabilities of the United States, Mexico and Canada – the three signatory partners of the USMCA – to strengthen a regional supply chain. and recover production capacity that has been affected by disruptions to supply chains, such as the Covid-19 lockdowns in China, which limited the supply of chips, and the war in Ukraine, which affected the supply of harnesses.
Volkswagen’s 2022 sales fell 6.8% because of this, and the company warned in January that the current chip shortage means 2023 will remain “volatile and challenging”, though it expects supply to improve.
Semiconductors and lithium batteries have become two critical inputs for the automotive industry and controlling the production of both, in addition to other critical minerals and rare earths such as cobalt, has become a matter of “national security” for the main economies.
“Critical minerals provide the building blocks for many modern technologies and are essential to our national security and economic prosperity,” the White House wrote in a statement released last February.
A regional bet
Globally, China controls most of the market for processing and refining cobalt, lithium, rare earths and other critical minerals, and the US government determined last year that its excessive reliance on foreign sources for critical minerals and materials posed “threats to economic and national security”.
Since then, the US government has designed an aggressive package of fiscal incentives to diversify the sources of critical inputs.
“There are some 60 companies that have announced investments to set up semiconductor plants and lithium batteries, among other things, in the United States attracted by the incentives,” Di Si said. “I think that these very aggressive policies of the United States are going to end up favoring Mexico,” he added.
Since the coronavirus pandemic disrupted supply chains, Mexico has positioned itself as the ideal nearshoring destination for companies in sectors such as automobiles, electronics, textiles, and furniture.
For Di Si, one of the main qualities of Mexico is the ability of engineers to produce cars. “Mexico is very well positioned in the world for quality. The vehicles that are produced in the country are five-star products”.
“The challenge now is to think about what will be the footprint of Mexico in the next 10 years,” he added.
The highest representative of Volkswagen in America warns about the need to develop a supply chain in the country that supports the transition to electric vehicles. “For example, today there is no battery factory that can supply several manufacturers,” he said. “There are also logistical and renewable energy challenges.”
Volkswagen looks at hybrids as a transitional technology
By 2030, Volkswagen expects electric vehicles to represent half of its total sales in North America -in Europe the goal is 70% of the total-, so the brand has proposed to launch, globally, at least one new electric car every year.
But the adoption of the technology will be different in each market. While in the United States, Di Si sees “accelerated adoption,” in Mexico the transition “will take much longer than many expect.”
“A hybrid could be an intermediate step,” he said. “It’s something we’re looking at,” she added.
Di Si assured that investments in combustion cars will be smaller and smaller. However, Volkswagen has not set a date to end the production of combustion engines, as other brands in the group have done. Audi, for example, will do it in 2026.
“I think that in this transition period, which can last five, ten years, or more, you should have one foot on each side, and speed up production (of one technology or another) depending on the market,” he concluded.