The Power of PPAs: Renewable Energy in the Regional Automotive Industry

Global automotive manufacturers are deploying unprecedented capital investments across Latin America, fundamentally reshaping competitive dynamics. This market evolution has catalyzed the development of sophisticated resilience strategies, with renewable energy procurement emerging as a decisive competitive differentiator.

China and the United States dominate the global production of light and commercial vehicles. According to the International Organization of Motor Vehicle Manufacturers (OICA) analytics, they accounted for 43.59% of all automobiles manufactured in 2023 — 40,772,521 units out of a total of 93,546,599.

Mexico maintains regional preeminence within Latin America’s automotive ecosystem with 4,002,047 units (securing seventh position globally), followed by Brazil’s 2,324,838, Argentina’s 610,725, and Colombia’s 34,700 unit output.

China’s manufacturing capacity reached 30,160,966 vehicles, while U.S. production stood at 10,611,555. A critical market asymmetry emerges in trajectory analysis: China has demonstrated 17% production growth since 2019, contrasting with a 3% contraction in U.S. output. The 2022-2023 period further amplified this divergence, with China achieving 12% growth against the U.S.’s 6% expansion.

Over the past few years, China has quadrupled its vehicle sales in Latin America, with revenue surging from $2.182 billion in 2019 to $8.564 billion in 2023, commanding 20% market share and establishing regional market leadership. China’s market dominance is more pronounced in the emergent electric vehicle (EV) segment, controlling 51% of regional sales and maintaining near-complete market capture in the electric bus sector.

The United States, previously the dominant supplier through 2021, has experienced market position erosion and is now second with a 17% share. According to an AFP News Agency analysis, Brazil’s market presence has contracted to 11%.

China invested approximately $2.27 billion in Mexico—the region’s largest market—across 20 automotive industry projects during the first half of 2024, a 52.7% increase from the same period in 2023.

In Brazil, BYD, the world’s largest electric vehicle manufacturer, announced an 83% increase in its investment in the country, bringing its total commitment to approximately $1.1 billion.

Chile’s market data reveals significant Chinese penetration, with 111,108 units imported in 2023, representing 39.4% of the total vehicle market share, with particular dominance in the EV segment.

Despite modest production metrics relative to regional peers, Colombia is experiencing accelerated EV market development. This is substantially driven by Chinese manufacturers like BYD, which has been instrumental in developing sustainable public transportation infrastructure, particularly in expanding urban electric bus fleets.

As Latin America’s automotive sector undergoes structural transformation, incumbent and emerging players consider renewable energy a strategic imperative. Power Purchase Agreements (PPAs) present a compelling value proposition for enhancing regional competitiveness. They enable established firms to maintain market relevance while facilitating new competitors’ market entry, fostering a dynamic ecosystem where energy sustainability drives sectoral growth.

Renewable Energy: A Strategic Ally for Market Leadership

Integrating clean energy into manufacturing processes enables automotive companies to achieve dual strategic objectives: decarbonizing operations while enhancing sustainability credentials. This market differentiator yields both competitive advantage and fiscal benefits in select jurisdictions. Furthermore, it provides unprecedented stability and predictability in energy cost management.

Atlas Renewable Energy maintains a position of strategic prominence in Latin America’s energy transformation. With a project  portfolio exceeding 8.4 GW, it is one of the region’s most substantial renewable energy infrastructures. The company strategically expands its presence across pivotal sectors driving future economic growth, including advanced technology, data center operations, and food manufacturing.

The transportation and mobility sector has a particularly significant environmental impact. It accounts for approximately 23% of global energy-related greenhouse gas emissions, second only to power generation at 42%. This positioning has intensified pressure on the sector to execute comprehensive carbon footprint reduction strategies aligned with Paris Climate Agreement protocols and global environmental mandates.

The imperative for sustainability extends beyond evolving consumer preferences to fundamental shifts in capital markets and financial institutions. KPMG’s market analysis indicates that sustainability metrics—and their associated opportunities and risk factors—have become critical determinants in banking decisions. Their report emphasizes: “For financial institutions, sustainability transcends ethical considerations to become an economic and existential imperative, giving rise to a new risk category: ESG risk (environmental, social, and governance).”

Strategic Evolution: Renewable Energy PPAs in an Expanding Automotive Market

Market intelligence from Mordor Intelligence projects that the South American automotive sector will be valued at $27.28 billion in 2025 and grow at a CAGR of 8.60% to reach USD 41.21 billion by 2030.

Despite sustained vehicle sales growth, the Mexican Association of Automotive Distributors (AMDA) signals potential market equilibrium challenges in Mexico due to the accelerating penetration of Chinese imports.

Against this market backdrop, renewable energy infrastructure has emerged as a critical competitive differentiator for Latin American automotive manufacturers and assemblers seeking to optimize their market position.

BloombergNEF’s analysis indicates that corporate renewable energy procurement through Power Purchase Agreements (PPAs) increased by 12% year over year in 2023, achieving an unprecedented deployment of 46 GW in solar and wind contracts—an increase from 41 GW in 2022. Corporate sustainability imperatives and strategic energy procurement objectives drive this acceleration. Agreements are typically structured across 5-to-20-year horizons to ensure price stability.

The International Renewable Energy Agency’s (IRENA) latest market analysis reinforces the economic proposition of renewable energy, revealing that 81% (382 GW) of the 473 GW in newly commissioned large-scale renewable energy infrastructure in 2023 demonstrated superior cost economics compared to conventional fossil fuel alternatives.

The analysis further indicates that in 2023, global solar photovoltaic generation achieved a 56% cost advantage over fossil fuel and nuclear alternatives.

Carbon pricing mechanisms represent another critical market driver accelerating clean energy adoption. Mexico’s implementation of a greenhouse gas (GHG) emissions pricing framework, which applies taxation based on carbon output metrics, exemplifies this trend.

Consequently, PPAs have evolved into a strategic imperative for automotive manufacturing and assembly operations across Latin America, delivering both cost-optimized electricity procurement and long-term price stability. This dual benefit enables manufacturers to achieve operational cost predictability and sustainability objectives.

Latin America: Navigating Automotive Market Evolution Through Energy Sustainability

Chinese automotive manufacturers—followed by their U.S. counterparts, collectively representing global production leadership—are executing strategic market expansion initiatives across Latin America with unprecedented scale and precision.

Power Purchase Agreements (PPAs) for renewable energy have emerged as a cornerstone strategy for incumbent manufacturers and market entrants in the region. The imperative primarily drives this strategic shift to secure long-term energy price stability at competitive rates. These agreements provide robust hedging against spot market volatility while mitigating exposure to carbon taxation frameworks.

A parallel strategic driver is the fulfillment of sustainability commitments—critical not only for brand equity but increasingly essential for manufacturing decarbonization initiatives, a requirement gaining prominence in institutional lending criteria. By strategically addressing these imperatives, Latin American automotive manufacturers can enhance their competitive position against imported vehicles, establishing market resilience in an industry undergoing fundamental transformation.

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This article was created in partnership with Castleberry Media. At Castleberry Media, we are dedicated to environmental sustainability. By purchasing carbon certificates for tree planting, we actively combat deforestation and offset our CO₂ emissions threefold.