Latin America has One of the cleanest electricity matrixes in the world, with 60% of installed capacity from renewable resources (higher than the world average) and the fastest growing car fleet in the world, which will reach 200 million in 2050.
Santiago de Chile.- In Latin America, with the post-covid-19 recovery, the automotive industry has emerged as one of the key drivers of economic growth, with an expected CAGR (Annual Compound Growth Rate) of 5% in the period 2021 -2026. There is massive export demand as the region becomes a viable alternative for nearshoring operations for its neighboring markets.
Global sustainable development measures, coupled with consumer demand for greener transportation alternatives, will drive a shift towards electric vehicles. While charging infrastructure is limited and expensive, state policies such as tax exemptions or usage restrictions for fuel-powered vehicles will have a far-reaching effect. Some markets like Mexico or Chile show potential for faster adoption of personal vehicles.
The transition from “fuel” to “charge”
Latin America is about to make the transition to electric vehicles in the transport sector, as it has:
One of the cleanest electricity grids in the world. 60% of installed capacity from renewable resources (higher than the world average). The fastest growing car fleet in the world. An expectation of growth of the car fleet that will reach 200 million in 2050.
Hybrid electric vehicles and plug-in hybrid electric vehicles (HEVs, PHEVs) have shown exponential growth by allaying concerns of limited charging infrastructure in the region. Consumers prefer to have both fuel and electric charging options, giving them a higher degree of mileage and range compared to traditional battery electric vehicles (BEVs).
According to a study by Frost & Sullivan, about 114,700 hybrid vehicles (HEVs) are forecast to be sold across the region, representing a year-over-year growth rate of 26%. Sales of plug-in hybrids are expected to reach 20,300 units (+36% CAGR) by 2025, and battery electric vehicles are expected to reach 23,300 units (+50% CAGR).
Manufacturers: demand and market penetration
For manufacturers, the production of any type of electric vehicle requires a strong supply chain that can deal with various bottlenecks. The global repercussions of covid-19 have led to a shortage of semiconductors that has had a great impact on car manufacturers, since electronic components can represent up to 47% of the total cost and composition of a car.
Some of the components of electric vehicles, such as batteries, are materials that require certifications to be transported. Manufacturers must ensure that their logistics partners have the necessary capabilities to avoid any problems.
According to John Carmichael, Global Head of the Automotive Vertical at AP Moller Maersk, “One of the biggest challenges manufacturers are facing, especially in Europe and North America, is having a strong enough battery supply chain, due to the specific storage and handling requirements.
Regulatory changes and automotive landscape in Latin America
Mexico is a potential supplier, with output for the US under the NAFTA agreement, and offers incentives such as exemption from the new car tax to owners of hydrogen and hybrid electric vehicles. These incentives have boosted the market for electric and hybrid vehicles: in 2019 these vehicles totaled 955,393 units from January to September.
Brazil will have investments focused on the development of electric vehicles for the public transport and freight sector. Since 2018, Colombia has had a regulatory framework to promote electric vehicles with various laws that reduce taxes and eliminate traffic restrictions. Chile has had a national electromobility strategy since 2016 that aims to electrify 40% of the private fleet by 2050.
The global sustainability agenda will impact key markets such as Chile, Mexico and Brazil. From a regulatory perspective, aspects such as production, storage and safety will be influenced by the lobbying of automotive assembly groups in each country, which are highly relevant in Mexico and Brazil.
Challenges for manufacturers
The biggest challenge in the development of the HEV/PHEV segment for automakers will be managing two supply chains in parallel to meet the demand for IC (internal combustion) engine components and the supply of electronic parts and batteries. According to Maersk experts, the transition from IC-powered to electric vehicles will be challenging in terms of the complexity of product design and the number of parts used. By offering alternative powertrains, manufacturers will have to re-analyze their supply chain from multiple angles.
They will also need to strengthen their vertical integration in the aftermarket supply chain, as the switch from IC engines to EVs (HEV, PHEV, BEV) will require companies to accurately forecast demand for parts and components over the next 10 years.
In the near future, it will be difficult for manufacturers to outsource their reverse logistics to a partner that does not have the right technical knowledge. This is mainly due to the rules and regulations regarding the handling and storage of batteries. The dangerous component in the transport of batteries is the environmental aspect and pollution.
Due to the different regulations in each country, Maersk is developing an end-to-end management system together with temporary storage and deposits for battery flows in key markets such as Brazil and Mexico.
What does the future look like?
To be prepared for unforeseen disruptions, supply chain management, data integration and automation will be key as they provide access to unrestricted information. Solutions that address visibility in the supply chain, transportation and destination management will also be just as crucial for any logistics provider to establish its presence in the market.