Why Mexico’s government is making an electric car #NewsMarket

Hello and welcome back to Energy Source, coming to you from New York, where the energy industry is digesting President Donald Trump’s blizzard of announcements on day one of his new administration.

As expected, Trump said he would declare a “national energy emergency” and pledged to boost oil and gas production, slash prices for consumers and export US energy all around the world.

“It is that liquid gold under our feet that will help to do that,” he said during an inauguration speech peppered with references to his campaign pledge to “drill, baby, drill” and unleash US energy dominance.

Trump promised executive orders that would “end leasing to massive wind farms that degrade our natural landscape”, overturn emissions rules on vehicles and withdraw the US from the Paris climate agreement. He vowed to end the “green new deal”, most likely a reference to the Biden administration’s financial support for renewable energy, and streamline permitting rules to enable a faster buildout of energy infrastructure.

Doubts exist about whether Trump can persuade the oil industry, which remains focused on shareholder returns, to step up the investment required to boost production. US output is already at record levels and global oil demand is increasing at a slower pace than in recent years, keeping a lid on prices.

But it seems clear the Trump administration will dramatically shift the regulatory and public funding landscape in the US towards fossil fuel production and away from incentivising green energy.

Our main item today focuses on how Mexico is taking a very different approach to Trump’s America: backing a state-funded, low-cost EV.

Thank you for reading, Jamie

Mexico’s government to make a low-cost electric car

Over the past six years, Mexico’s left-wing ruling party has created a government-run airline, bank and tourism company. Its next business venture? A low-cost electric vehicle.

This month President Claudia Sheinbaum fleshed out details for a state car brand called “Olinia” — meaning “movement” in the indigenous Nahuatl language. The pitch is a simple, ultra-compact car designed and built in Mexico, with a final retail price between 90,000-150,000 pesos ($4,400-$7,300) that can be charged in any socket like a fridge and is aimed as a safer alternative to motorbikes.

“The electric vehicles currently sold in Mexico are expensive and not accessible for the majority of Mexican families. That’s what we’re going to change,” Roberto Capuano Tripp, the director of the project, said earlier this month.

By the end of Sheinbaum’s term, the government wants to launch three different models, presenting the first at the 2026 World Cup opening match at Mexico’s iconic Azteca Stadium. The vehicles would be for urban use only, with the main parts manufactured in Sonora state and assembled in different parts of the country.

The announcement provoked a stream of memes and jokes in some Mexican media deriding the new “AMLOrghinis” (in a reference to previous president Andrés Manuel López Obrador), and AI-generated videos of Sheinbaum driving around in a plastic toy car.

But can it work?

The transition to electric mobility in low and middle-income countries has been slow because of worries about high upfront costs, according to a 2022 World Bank report. Mexico’s world-class auto industry is focused on selling abroad, particularly in the US; it made nearly 4mn vehicles last year and exported almost 3.5mn.

The idea is not to compete with the high-end hybrids or electric mini-SUVs, but instead with the country’s 7mn motorbikes, some of which are used for short trips or as taxis in working-class neighbourhoods with very little urban planning and few public transport options.

Stephanie Brinley, associate director of AutoIntelligence at S&P Global Mobility, said consumers in middle-income countries such as Mexico were showing interest in electric vehicles but the main competition was still internal combustion engines, rather than other EVs.

“The transition to a broader electric vehicle market is going to take us 10, 15 years,” she said. “And every market has to evolve on its own and at its own pace.”

The project’s initial budget of just 25mn pesos ($1.2mn) doesn’t suggest lofty manufacturing ambitions amid tight fiscal pressures. A study from the Center for Strategic and International Studies estimated China spent $4.3bn funding research and development in its EV sector in 2023.

Competing with China is proving too difficult for global auto giants, let alone for the Mexican government.

One in five vehicles bought in Mexico in 2023 were made in China. The Mexican government is clamping down on Chinese imports in an attempt to maintain its trade deal with the US and Canada. But even with tariffs on Chinese EVs, competing with their products is a tall order.

The country’s public charging network is also limited to 3,321 charging stations, according to the trade group Electro Movilidad Asociación, with the electricity grid under severe strain already. Private companies interested in investing are cautiously awaiting Sheinbaum’s final rules for private electricity investment that should be out in February.

Another concern is the poor record of many Mexican state-owned companies. The airline, Mexicana, had to suspend many of its routes and now has just two planes in its fleet (it is awaiting a larger delivery from Brazil’s Embraer), state oil firm Pemex is the world’s most indebted oil company, while some of the country’s new military-run tourist resorts have had minimal visitors.

Morena, the ruling party, sees the revival and creation of new state firms as part of its political project, harking back to the fast-growing years between the 1950s and 1960s known as the “Mexican miracle”. A government brand created in the 1950s called Diesel Nacional (Dina) built buses and trucks until its privatisation in the 1980s.

The question will be whether Mexican consumers want to buy what Olinia has to offer.

“Mexico does have a pretty strong supplier base, it does have a pretty strong network of manufacturing to draw from in terms of expertise and knowledge,” Brinley of S&P said. “We’ll see how quickly it evolves. But certainly, it’s an interesting project to watch.” (Christine Murray)

Power Points

• Donald Trump is threatening the EU with tariffs unless it imports more US liquefied natural gas. But the bloc has no power to buy collectively and European industry is gorging on record amounts of cheap Russian gas.

• Investors withdrew about $30bn in total from climate-focused mutual funds in 2024 as higher interest rates and the return to power of fossil fuel champion Trump cloud the outlook for the sector.

• Danish winder developer Ørsted announced further writedowns on its US offshore wind business citing interest rates, supply chains and “market uncertainties”.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.