Audi’s future-proof factory in Mexico 

Situated southeast of Mexico City and west of Veracruz, Audi’s plant in San José Chiapa, in the state of Puebla, is the most modern site in the carmaker’s production network. Opened in September 2016, the facility manufactures more than 150,000 Audi Q5s annually for the global market. The Q5 SUV is the only model that is entirely produced by Audi outside the European continent.

Exporting around 95% of its output around the world, the Audi’s Q5’s top three markets are China (through complete knockdown kits), Europe and the US. While the OEM has flexibility in the modes it uses to ship vehicles out of the plant, 60-80% is moved by rail either to Veracruz port or north across the border by land to the rest of North America. It also moves volumes to Lázaro Cárdenas port on the west coast for Asia exports.

Crisis management

However, while Mexico’s key automotive state boasts multimodal links because of its location, Puebla has been punished by the global pandemic, which caused a series of shutdowns and subsequent restarts to the automotive industry. As with sister brand Volkswagen, whose plant in Puebla was forced to temporarily close on March 30, Audi México paused production on March 23.

After a series of false starts, the majority of Mexico returned to production at the end of May, however, Puebla governor Miguel Barbosa signed a decree in June stating that conditions for reopening the automotive and construction sectors were not yet favourable in Puebla, meaning Audi and VW had to wait until June 15 to reopen.

Currently, the resumption of production is carried out with 30% of the workforce and Patricia Bernstein, head of ramp-up management, Audi México says the OEM is strictly complying with the measures established by the Ministry of Health, the Ministry of Labor and Social Welfare, and the Mexican Institute of Social Security.

“Audi México looks back on more than 80 days without production, and of course, for a manufacturer, not being able to build cars is a heavy burden,” she says. “Nevertheless, in the administrative departments we were able to push forward thanks to mobile working (or working outside of the office). Our IT department managed to support efficiently, so we were able to work remotely without any technical restrictions.”

Obligatory use of masks inside the plant, social distancing and the constant sanitation of workspaces in both production and administrative areas, as well as buses for transporting employees to work and back home, are all part of the plant’s new normal. However, Bernstein says the confinement generated by the coronavirus has led to an exponential growth in mobile working.

“In economic terms I think the collaboration via new mobile work technologies, which allowed teams to conduct meetings and presentations virtually between Mexico, Ingolstadt [Germany] and other places in the world can be more efficiently used in the future, also in order to reduce business travel costs.”

In terms of getting back to pre-Covid levels of manufacturing, Bernstein says Audi will examine the percentage by which it can gradually increase its production capacity in the coming weeks.

Circular economy

The Covid-19 crisis continues to disrupt automotive production and logistics operations, but it has not removed the priority of developing more sustainable logistics and production processes. According to Bernstein, Audi México is taking a leading role in the sustainable use of resources within the Volkswagen Group. Its Puebla site produces the Q5 entirely without wastewater, claiming to be the first OEM in the world to do so.

“In terms of sustainability, we have ambitious plans to move further ahead,” states Bernstein. “Following the successful implementation of the wastewater-free plant in 2019 through a multi-stage reprocessing process, we are currently pushing ahead the further reduction of our fresh water consumption.”

Careful use of water resources is a primary sustainability objective for Audi México. Another one of its projects aims to increase the efficiency of ultra-filtration and reverse osmosis in industrial water treatment by means of a downstream ion exchange system. The carmaker uses the treated water as process water in production and also to irrigate the green areas around the plant. It says as a result it will be able to save approximately 100,000 cub.m of groundwater additionally.

As a continued part of its commitment to the environment, the OEM has also planted more than 100,000 trees and installed 25,000 septic tanks on an area of 100 hectares in the neighbouring municipality of San Jose Ozumba. In the rainy season, up to 375,000 cub.m of water are returned to the groundwater there each year.

Closing the loop

In 2019, Audi started production of the first premium plug-in hybrid SUV made in Mexico, the Q5 TFSI e. Amid the automotive industry’s push toward cleaner mobility and electric vehicles (EVs), carmakers are also targeting emission-free manufacturing. In 2018, Audi initiated a joint CO2 programme with its suppliers to identify measures for further CO2 reductions in the supply chain, and it has identified opportunities in closed material loops.

The OEM introduced the Aluminium Closed Loop at its Neckarsulm site in Germany in 2017. Aluminium sheet offcuts produced in the press shop were sent straight back to the supplier to be recycled into aluminium sheets of equal quality for Audi to use in production. Neckarsulm now employs the closed loop with two suppliers, achieving a saving of roughly 150,000 metric tons of CO2 in 2019, two-thirds more than the year before, according to the carmaker.

“Audi not only has its own production in mind, but the entire value chain,” says Bernstein. “Our CO2 procurement programme worldwide lays the foundation for a CO2 saving potential of 1.2 tons of CO2 per car produced. With the aluminium closed loop, Audi achieved a saving of around 350,000 tons of CO2 since its introduction - the equivalent of a small town.”

Audi México is researching its own alternatives to the aluminium closed loop system according to their environmental and economic feasibility. Bernstein says the plant is constantly working on evaluating measures to reduce its carbon footprint.

“The biggest impact in our CO2 reduction comes from the electric supply, which has been entirely obtained from an offsite PV [photovoltaic] system through the Mexican electrical energy market since January 1 2020,” she says, revealing that this measure alone had reduced Audi México´s carbon footprint by 80%.

Energy provider Iberdrola Mexico is building on its 200-megawatt Cuyoaco solar PV project, which already has more than 730,000 solar panels spanning over 703 hectares and feeding the grid in Puebla with energy.

Additionally, the car plant is using a certified energy management system (ISO 50001:2018) to optimise its energy consumption and reduce its CO2 emissions.

Steering digitalisation

San José Chiapa employs 5,200 employees but has a high level of robotisation, and with an automation level of 80%, its production line is one of the most automated in the world. The plant was also the first in the Volkswagen Group to implement radio frequency identification (RFID) antennas.

“We are using RFID in our production processes to follow our vehicle flow, to be able to know where the vehicles are parked and finally to ensure their proper release for export or delivery, which is helping us in order to reduce the lead times,” says Bernstein.

The technology is also linked to Audi México’s data-based steering system, Assembly Live. Data-based steering is the ability to control or steer production with realtime data information.

“This is really helpful in having a realtime overview of our processes and also to be able to react to possible problems to avoid them,” says Bernstein. “Within this system we are able to steer all of our production processes up to the level of single vehicle status. We can show all of the vehicle information and also the vehicle full configuration, not only text but also with pictures.

The system, which has been implemented since the opening of the plant, is being updated on a regular basis to bring the most updated information to each employee.

USMCA and the future

At the start of production of the Q5, Audi México was sourcing more than 70% of the parts from the North American Free Trade Agreement (Nafta) region and has increased this proportion of localisation over the last few years. More than 180 companies in North America supply parts for the Audi Q5 , and seven suppliers and logistics providers operate from a supplier park adjacent to the carmaker’s plant optimising a just-in-sequence (JIS) operation.

The United States-Mexico-Canada Free Trade Agreement (USMCA), which replaces Nafta, went into force on July 1. The agreement includes new duties on steel and aluminium, and an increase in the percentage of regional content used in vehicles assembled in North America. The minimal amount of regional value content (RVC) included in each vehicle will increase from 62.5% under Nafta to 75% under USMCA over the next three years. The RVC goal will be phased in at levels of 66% in 2020; 69% in 2021; 72% in 2022; and 75% in 2023.

Assembly plants that opened production in Mexico over the past few years, including Audi, have until 2025 to reach the goal, but Bernstein says Audi welcomes the opening of the three countries to international agreements.

“The implementation of the new [USMCA] agreement represents challenges that will require new production methodologies throughout the automotive industry, including its supply chain sectors," says Bernstein. "Together with VW Group, Audi México has actively participated in the development of the agreement from the beginning of the negotiations. We are working closely with all our suppliers to solve the changes that the new agreement requires.”

Speakers from Volkswagen Group will address supply chain challenges and opportunity in Mexico, including Susanne Lehman, senior director of North America Production for Volkswagen de Mexico