Global shift to 5G prolongs Mexico auto downturn

The shift to 5G cellular networks is boosting demand for semiconductors and extending the chip crisis for North America's auto industry.

Mexico's auto sector is feeling the impact, saying global 5G adoption is a main reason it expects its semiconductor woes to continue until at least the first quarter of 2022.

As telecom companies move to 5G, consumers upgrade their mobile phones and tablets to devices that are compatible with the new network. This is further increasing demand for new devices, which require semiconductors.

Because the electronic manufacturing industry accounts for a greater share of the chip market than auto — which only purchases around 10pc of semiconductors globally — chip makers are pushing back orders from carmakers to feed demand for cell phones.

"They take it away from auto industry to give it to that sector," said Alberto Bustamante, director of Mexico's auto parts chamber (INA). "Factories give priority to this immense global market, and this sets back supply to the auto industry globally."

This has led to a precipitous decline in Mexican light vehicle production in the second half of this year.

Annual output in Mexico fell by 20pc last month compared with the prior year, the fifth consecutive monthly decline. It marked the lowest production number for the month of November since 2011.

So far this year, 581,000 vehicles slated to be produced in Mexico and 1.5mn vehicles planned for production in the US have been delayed by the shortage, according to INA. Overall, 20pc of vehicles in North America have been affected, INA said.

The 5G phenomenon is exacerbating a trend that began at the onset of the Covid-19 pandemic, Bustamante said.

When government-imposed lockdowns began, people began buying more electronic devices, driving up global demand for chips, he said. Semiconductor factories could not meet overall demand once the auto industry began to recover from the initial months of Covid-19.

Automakers are hopeful that the shortages will not extend too far into 2022, in part because consumers tend not to buy new cell phones and tablets more than once a year, Bustamante said.

Mexico's continued auto production declines come as a key measure of Mexican manufacturing activity also declined in November — partly because of the global supply chain disruptions — and the body that calculates the index said the country's economic recovery was losing steam.

By Jens Erik Gould