An Overview of the Recent Growth of Composites Manufacturing Facilities in Mexico
By Mike Favaloro, President, CompositeTechs, LLC
July 9. 2019
EXECUTIVE SUMMARY:
Composite materials have become the preferred design approach to aerospace, automotive, recreational and other industries, as they enable weight reduction, performance enhancement, corrosion resistance and other benefits over other materials. It is not inherently obvious how the complex composites manufacturing operations in Mexico could maintain a long- term stable manufacturing base separate from research and manufacturing locations of major corporations that utilize these technologies. Yet high performance composites have been manufactured in Mexico for more than 50 years. Many international companies have established manufacturing facilities in Mexico for several reasons, including an established technical and raw materials base, preferred labor rates, tax breaks, low infrastructure and utilities costs and good tariff status. This paper describes the status of the industry in Mexico and the rationale for facility investment in the region.
INTRODUCTION
Composites are anisotropic materials, which, unlike metals or injection molded plastics, utilize high value continuous reinforcements like carbon fibers that are shaped and formed to meet the functional requirements of specific applications. Metal parts are manufactured with standard machining, forming and casting processes, and plastics molding operations can be set up and run with a relatively low tech work force. In contrast, composites manufacturing usually requires a combination of a more technical white collar and blue collar work force, semi-automated and labor intensive operations, and high value raw materials.
High value, high margin composite products are visible in several industries. In the past 20 years composites utilization in commercial aerospace has grown from 12% per aircraft to over 50% for new designs. As commercial aviation is expected to double in the next 20 years, based on a 3.5% CAGR, composite growth for this industry will be substantial. Similar growth of composites utilization is noted in oil and gas, automotive, infrastructure, medical and other industries. Lighter hockey sticks, corrosion resistant marine vehicles, and infrastructure enhancements all benefit from the versatile properties of composite materials.
COMPOSITES IN MEXICO
Composites manufacturing is performed in Mexico for numerous international corporations in several industries. These include high value aerospace components, high volume automotive components, and others.
Aerospace
There are close to 100 international aerospace companies with composite manufacturing facilities in the Baja California region of Mexico alone (reference 1). These include Lockheed, Gulfstream, UTC Aerospace and many others. Some facilities with locations in Baja California are noted in Figure 1. Baja has a skilled workforce of 28,000 employees in the aerospace industry, composed of operators, engineers and technicians. A significant percentage of the industry is geared towards aerospace, which means that high quality certified facilities with AS9100 and NADCAP certifications are common. This translates into quality capabilities to other industries. Some of these companies have been in operation for close to 50 years, as shown in Figure 2.
A small listing of high technology composite aerospace parts manufactured in the area include:
· 3D woven and RTM carbon fiber blades for A/C engines manufactured by SAFRAN
· Helicopter components - Airbus
· Large production components - Gulfstream
· Structures - ICON Aircraft
· Cabin interior components
· Environmental Control Systems
Several companies in the region are autoclave curing and oven curing large structural aircraft components. There are robot-assisted automated fiber placement processes, multidirectional weaving capabilities, and high -end resin transfer molding processes, along with more conventional low-tech composite manufacturing methods such as oven curing, vacuum molding, match molding, vacuum-assisted resin transfer molding and other processes.
It must be noted that the Baja region is not the only region for aerospace composites manufacturing in Mexico. The Queretaro state is also the home of 85 companies that support various aspects of the aerospace industry, including some composites fabrication. Duqueine provides autoclave manufacture of composites in this region.
Automotive
The automotive sector accounts for more than 17% of Mexico’s manufacturing sector. Mexico is second to the US in the western hemisphere in terms of manufacturing automobiles. GM, Ford and Chrysler have been operating in Mexico since the 1930’s, and VW and Nissan have been there since the 1960’s. Every American automotive factory depends on Mexican parts to build their cars and trucks. Currently 16%b of all auto parts in the US automotive assembly plants are manufactured in Mexico. Composites processing methods include stamping of composite materials with continuous, nonwoven and discontinuous forms, injection molding of reinforced and unreinforced polymers, resin transfer molding, vacuum -assisted resin transfer molding, and others.
One recent example of automotive composites investment in Mexico is the IVEMSA/ Rock West facility opening in December 2018. The facility is scheduled to manufacture both automotive and aerospace composite components using filament winding, roll wrapping, resin infusion, bladder molding and modified closed mold processes.
Another example is Advanced Composite Products, a Mexican company that manufactures glass reinforced thermoplastics for a variety of automotive applications, including pillars for side air bags, interior trim, bumpers, fascias, body-side moldings and other parts.
Other Industries
There are a number of marine based composites manufacturing facilities in Mexico. Bombardier Recreational Products has been manufacturing fiberglass hulls and decks for its Sea-Doo personal watercraft in Queretaro since 2012 in a facility greater than 500K sq ft.
Several sports and recreational composite products are made in the country. For example, carbon fiber reinforced hockey sticks have been manufactured by Warrior in Mexico since 2012. The facility manufactures several hundred sticks per day for the NHL and other players of the sport.
Other composites facilities in the region include wind blades from ITP/Vestas. Vestas is a Danish company that operates on five continents. They have teamed with TPI Composites of Rhode Island and established wind blade manufacturing lines in Matamoros. The relationship was launched in 2017 and will grow to six production lines to manufacture blades for Central and South America.
Raw Material Suppliers
To support the existing industry there is a large list of raw materials suppliers in the region for resins, reinforcements, prepregs, and compounds. Zoltek, a division of Toray, has recently expanded their carbon fiber facility capacity to 5KTons/year. IDI is a manufacturer of sheet molding compounds and bulk molding compounds. Zoltek, Hexcel, Solvay and other raw material and prepreg suppliers manage active distribution paths in the region.
GEOGRAPHIC CONSIDERATIONS/ ECONOMIC ZONES
Mexico has established seven special economic zones (SEZ’s) in the southern regions of Puerto Lazaro Cardenas, Salina Cruz, Coatzacoalcos, Paraiso, Progreso, Champoton, and Puerto Chiapas. SEZ’s have been very successful in other countries like China, where they have generated 45% of total national foreign investment and created over 30 million jobs. While the specific benefits in each zone may vary, SEZ’s in Mexico generally provide a tax benefit of 100% reduction in income tax for the first ten years, and 50% for the next five. This reduction would apply to the corporate tax of the entity itself and could therefore eliminate the 30% income tax liability due on net profits generated by the entity. It must be noted that there is a 10% withholding tax on dividends paid to shareholders or partners that are non-residents or not citizens of Mexico. There are also training benefits, income tax credits for social security contributions, VAT reductions and other benefits. A more detailed explanation of SEZ benefits in Mexico can be found in Reference 2.
The skilled technical composites manufacturing workforce in Baja and northern Mexico is in close geographic proximity to the US aviation manufacture corridor. The Tijuana and Mexicali regions are less than 200 miles from the LA basin, as shown in Figure 2. Tax breaks are a huge impact, especially at the US border states, where Mexican President Lopez Obrador (also known as AMLO) declared an economic free zone 25 miles from the border for all industries. This is anticipated to result in a great impact on the production and import of advanced materials and technologies that are produced in this region. This free zone stretches nearly 2,000 miles, from the Gulf of Mexico to the Pacific Coast. In this free zone, income tax is reduced from 30% to 20%, VAT is reduced from 16% to 8%, the minimum wage is boosted to $8.80 per day, and fuel prices are made equivalent to US fuel prices. AMLO is hoping this will reduce the incentive for Mexicans to migrate north of the border in search of better jobs.
UTILITIES AND LABOR COSTS
In Mexico wage rates are set by law through a commission integrated by government, employees and the private sector. Foreign investors are encouraged to utilize a personnel manager to address labor relations requirements of the facilities.
An example of established labor rates is shown in Attachment A (reference 3). This information can be utilized to derive a manufacturing cost comparison between Mexico and other locations.
Typical electricity, fuel and gas costs are provided in Attachment B (reference 3). As shown, the costs are far less than the US equivalent costs.
Of particular interest is a shelter program established by the Mexicali government. The program was established as a method to start production in as little as 90 days, while avoiding common administrative, legal and language issues. It is considered a low risk financial approach with long term government support. Under the shelter program, the investing company provides raw materials and components, production equipment and tools and on-site production management. The program provides site selection support, securing of local permits, qualified labor , hiring support for white collar staff, utilities, building maintenance, insurance, government interface support and computerized accounting and payroll. Cost for the program is hourly labor rates, wages of indirect and salaried personnel, including American personnel, severance pay, customs duties, freight and customs brokerage charges and insurance on equipment and materials.
POLITICAL CONSIDERATIONS
The political landscape at the time of this publication is unstable and volatile. Trade wars and an ever-changing global tariff situation are making it difficult to finalize decisions on global manufacturing startups. In spite of this volatility, Mexico is achieving significant foreign investment in new facility startups for a number of reasons. The SEZ’s and tax -free border zone, along with a stable low wage rate are offsetting threats of increased tariffs. Furthermore, it is easier and cheaper to relocate manufacturing to the region due to proximity for ease of transport and stable existing infrastructure. Recently Hasbro and GoPro shifted production from China to Mexico, along with hundreds of other companies. According to Politico, the cost of this production shift totals tens of billions of dollars (reference 4). US companies will continue to manufacture volume components for cost considerations, and the lowest risk, most cost- effective location for manufacture is its southern neighbor.
SUMMARY
As composites manufacturing continues to grow rapidly in many industries, the relocation of high -tech composite facilities offshore from the US and Europe will also continue. Mexico has become the preferred location for composite manufacturing for numerous reasons, including an existing, well -established technical labor force, readily available raw materials, low costs, tax incentives, a friendly political landscape, and optimum proximity to the US industry base. Mexico has been viewed as the preferred location for offshore investment in spite of, and because of, the current fluctuating political tariff situation. The level of current foreign investment into Mexico by numerous sources validates this claim.
ACKNOWLEDGEMENT
The author wishes to thank Bill Castaneda, President of SAMPE (Society for Advanced Materials and Process Engineers) Mexico, for his valuable contributions to this article.
REFERENCES
1) “Aerospace Industry in Baja California”, SAMPE Mexico PowerPoint presentation, 2019
4) https://www.politico.com/magazine/story/2019/05/16/trumps-trade-war-is-making-mexico-great-226876
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