Meet the Mexican Electric Car Looking To Disrupt The Market, BBVA’s Resilience in Mexican Market Helps Bank Beat Profit Estimates, How Latin American Startups Are Following in China’s Footsteps, and more.
Meet Thalía: The Mexican Electric Car Looking To Disrupt The Market
Mexico might soon have its own electric car, composed entirely of Mexican talent and components.
Leopoldo Ortiz, CEO and founder of LM&TH, is pursuing his dream: to build the first 100% Mexican car, named Thalía. If his plan is successful, we could see the vehicles on the streets next year.
“There’s hope that this is the start of a new auto industry in Mexico, less dependent on foreign trade and a chance for the country’s business — and natural — environment.”
Ortiz told Fronteras that “unfortunately, the Mexican government is always looking towards the wrong direction,“ referring to the notion that the current government is unfortunately focused on opening refineries instead of supporting environmentally-friendly technologies.
Thalía’s birthplace, Puebla, is one of Mexico’s oldest bastions of the automotive industry, with companies like Volkswagen and Audi. Puebla’s significance has decreased, however, as newer plants have opened in other states such as Guanajuato.
Ortiz’s company LM&TH still needs to import 20% of Thalía’s components from China, and trade agreements with the U.S. have yet to help the situation.
“Actually, we bought some kits from the United States, and at the end we saw that they’re getting these kits from China,” Leopoldo said.
Electric cars in Mexico are still unpopular. Recent data from the Mexican Association of the Auto Industry indicates that in April, only 25 electric vehicles were sold. Leopoldo optimistically forecasts that the electric car boom will start in Mexico in 2023, as gas prices rise and pollution continues.
In about two months, Leopoldo will integrate his company’s electric bikes and tricycles into the Mexican market. As for Thalía, LM&TH expects to start by building 30 cars per month. The model will later develop into three versions.
Leopoldo said that they plan on selling Thalía (priced around $18,000) in large Mexican cities first, with the goal of eventually selling it online to the rest of the world.
BBVA’s Resilience in Mexican Market Helps Bank Beat Profit Estimates
Banco Bilbao Vizcaya Argentaria SA’s Mexican business dismissed an economic slowdown in the country, helping the Spanish bank make up for the low interest rates in Europe.
The bank’s Mexico unit posted its highest quarterly profit in at least a decade, allowing BBVA to report group earnings that beat analyst estimates.
According to Bloomberg, this “bucks a trend among Spanish banks that have been forced to reduce their forecasts as low interest rates persist.”
“While Mexico has long been the crown jewel of the group’s business, accounting for about 40% of profit, a potential recession could hurt earnings at a unit that has helped BBVA make up for sluggish growth in Spain and currency volatility in Turkey.”
Spain’s two largest banks, BBVA and Banco Santander SA, are riding out the ultra low European interest rates by depending upon their more robust Latin American investments: a market that has been experiencing faster economic growth and low levels of bank penetration, therefore allowing more room to add customers.
In Mexico, President Andres Manuel Lopez Obrador told Bloomberg that he’d like to see lower rates to “kick start the economy.”
Here are some highlights from BBVA’s second-quarter report:
- The bank’s fully-loaded and phased in CET1 ratio was 11.5%, up 17bps
- Net interest income of 4.57 billion euros beat the consensus of 4.44 billion euros
- Fee income of 1.26 billion euros beat the consensus of 1.24 billion euros
- Profit rose 4.4% in Mexico to 660 million euros, aided by strong net interest income which rose 16% from a year earlier
- Earnings at the Spanish business rose 14% in spite of virtually flat core revenue, due mainly to a write-back in impairments of 102 million euros
- Profit in Turkey fell 18% to 140 million euros mainly due to a depreciation of the lira; net income rose 3% at constant prices
Online Brokers Target Affluent Brazilian Lenders
A new breed of digital brokers is going up against a handful of powerful Brazilian lenders such as Itau Unibanco Holding SA and Banco Bradesco SA who have had a lock on retail investors seeking a one-stop shop for banking and investments.
Backed by investors such as China’s Fosun International Ltd and private equity firms like General Atlantic LLC, Advent International, and Warburg Pincus LLC, these newcomers have already attracted more than 10% of the 2.98 trillion reais ($736 billion) invested by Brazilians in local mutual funds, stocks, and bonds.
This could be just the beginning, as several firms are now looking to expand their investment platforms to become full-service banks that offer credit cards, checking accounts and bill-paying services.
According to UBS strategist Philip Finch,
“We expect the banks to be threatened by fintechs mainly in fee-based businesses, such as asset management, credit card and merchant acquiring”.
Market leader XP Investimentos, partially backed by Itau and General Atlantic, seeks to quadruple its assets under custody to 1 trillion reais by December 2020, with other firms setting similarly ambitious goals.
Habib Nascif, Chief Executive of online investment platform Orama, one of the first Brazilian companies to offer zero-fee mutual funds in 2011, stated
“A year ago we had 30 employees. We’ll probably have 200 people this year.”
According to Reuters,
“Brazil has one of the world’s most concentrated banking markets, with its top-five banks holding 82% of total assets, far above the 43% in the United States or 48% in the UK.”
Brazilians hold roughly 61 million savings accounts with 737 billion reais in deposits; typically yielding well below the benchmark Selic rate, which has declined in recent years. For many, these lower returns have peaked interest in alternatives to savings accounts, which have historically been traditional banks’ main investment product.
Aware that newcomers pose a sizable threat to their businesses, the country’s largest private-sector banks- such as Bradesco, Itaú Unibanco and Banco Santander Brasil SA- are revitalizing their asset management offerings, distributing third-party investment products, and in some cases, even lowering fees.
XP, which has 1.1 million clients, was granted a banking license in December and is planning an IPO in the United States. The firm plans to become a full-service lender in the future, competing with its main shareholder, and expects to start offering loans backed by clients’ investment holdings soon.
“Fee income in Brazil used to grow more or less in line with loans,” said Finch in response to the Brazilian lenders. This year, banks are recognizing competitive pressure and have set more modest targets” (Reuters).
Earlier this year, Itau reduced its fee income growth outlook to a range of 2% to 5% in 2019, down from as much as 5.5% to 8.5% last year and well below loan growth guidance of 8% to 11% this year. Although Bradesco has not set new targets for fees, the bank was below the bottom of its 2019 target as of April.
Europe and Latin America Have Much to Gain from Closer Ties
Over the past few decades, European interest in Latin America, and vice versa, has been spotty. The lack of serious intent and absence of concrete action was summed up by twenty years of on and off talks of a trade agreement between the EU and Mercosur.
If it is ratified, the EU-Mercosur treaty will offer substantial benefits to European manufacturers and Mercosur farmers. The agreement will be phased in over a 15 year period; and at the end of which it will have eliminated tariffs on over 90% of goods traded between the blocs, with tariff-free quotas for the remainder.
According to The Economist,
“It also opens up services and public procurement in Mercosur and, in effect, commits Brazil’s environmentally unfriendly president, Jair Bolsonaro, both to the Paris agreement to combat climate change (which he had wanted to leave) and to curbing deforestation of the Amazon.”
The potential stimulus of reforming Mercosur’s economies and promoting integration within Latin America is equally as important.
Brazil and Argentina are some of the world’s most closed economies, but that is likely to change.To take full advantage of the EU agreement, these nations will have to lighten their arduous taxes and regulations and boost their internal transport infrastructures; especially considering that both countries now have left-wing governments that want to open up economically.
This month, Mercosur’s presidents confirmed that they would like to swiftly reach trade agreements with Canada and the EFTA bloc, which includes Switzerland and Norway. Argentinean President Mauricio Macri stated that The EU agreement “is not a point of arrival but of departure”.
A more open, business-friendly Mercosur would in turn ease regulatory convergence with Latin America’s other big trading group, the Pacific Alliance.
“The long-awaited breakthrough reflects bigger changes. Both sides worry about the trade war and the geopolitical conflict between China and Donald Trump’s United States. China is now Mercosur’s largest single trade partner (and the second-biggest for Latin America as a whole)” (The Economist).
Although the EU remains the largest investor in the region, Chinese investments and loans to Latin America have grown fast.
China’s increasing influence is becoming a growing concern not just for President Trump, but is raising eyebrows in Europe and Japan as well. The daunting possibility of being squeezed between the Trump administration and China is a fear of many Latin American leaders.
The Mercosur agreement is part of a broader European reassessment of Latin America, as both regions are committed to the defensive values of democracy and multilateralism.
In April, Federica Mogherini, the EU’s outgoing Foreign Policy Chief, stated, “though far apart geographically, we are closer than any other continents”.
How Latin American Startups Are Following in China’s Footsteps
With a population exceeding 600 million, Latin America is the second-fastest growing mobile market in the world, behind sub-Saharan Africa.
With over 200 million smartphone users, the newest generation of Latin American tech startups is turning to China for inspiration. Among some of the primary challenges these companies are trying to solve is the integration of the region’s massively under- and unbanked population into the financial system and improving their lives with technology.
"Historically, Latin America has looked to Silicon Valley and New York for business, but there are innovations in China that could be even more applicable to the Latin American reality. When you go to China, you see what’s going to happen in Latin America in five more years. Today, we look at China. We look at Meituan, Alibaba, and Tencent to see what we can do in the future.”
Here’s a deeper look at how Latin America’s technology startups are following in China’s footsteps:
1.Mobile-first approach to payments
As the largest e-commerce market in the world, China is the obvious leader in mobile payment technology. According to a People’s Bank of China report, Chinese mobile payments hit a new record high in 2018 with 60.5 billion mobile payment transactions, or a 61.2% annual growth in the number of mobile transactions.
Similarly to China, mobile payments are booming in Latin America. As traditional banks and financial institutions struggle to meet the digital needs of Latin American consumers, significant opportunities have emerged for mobile and fintech startups. According to Crunchbase, the Latin American payments sector is one of the fastest-growing in the world: expected to achieve an average annual growth of 8% over the next five years, second only to the Asia-Pacific region.
2.More entrepreneurs are staying in Latin America
As economic relationships between Latin America and the U.S. remain uncertain, China has become an increasingly important partner for Latin American businesses looking for partnerships and investment.
Trade between China and Latin America has increased from $12 billion in 2000 to nearly $306 billion in 2018. Although the bulk of these investments were in energy and infrastructure projects, a number of investments in Latin America’s technology sector broke records in 2018.
This new influx of capital, paired with the increasing difficulty of taking one’s startup to Silicon Valley, is making it more appealing for entrepreneurs to stay in Latin America and focus on innovating and solving problems in their home countries.
Likewise, Chinese technology talent is not only heading back to China, but is growing there in record numbers. According to the Ministry of Education, 432,500- nearly 80% of Chinese overseas students- recently chose to go back to China after completing their studies.
The Chinese tech scene is benefiting from the mass influx of “Sea Turtles”- a name given to Chinese returnees who studied abroad in the US- in addition to the increase of a young, tech-savvy middle class. The Latin American middle class has been growing steadily over the past few years, driving growth in all consumer categories. This expansion has not only been good for business, but has proven to be essential in keeping and increasing local tech talent.
3.New Latin America-China Partnerships
As ties between Latin America and China become stronger, it has becoming increasingly feasible that these two regions will be the homes to the tech hubs of the future.
Although Silicon Valley startups still attract more capital today, startups in cities like Beijing and Shanghai in China and São Paulo and Medellín in Latin America are generating high-growth companies, raising mega-rounds of capital, and solving crucial problems in their respective developing markets.
Top Business Schools In Latin America For Earning an M.B.A.
International management aspirants are increasingly looking to study in Latin America due to the region’s budget-friendly fee structure, great infrastructure, and esteemed faculty at an affordable price. Many local Latin Americans are also looking for locally dignified MBA institutes that can offer them great career opportunities.
According to CEO World Magazine, this is the list of top business schools in Latin America for pursuing an MBA:
- EGADE Business School, Mexico: The highest-ranked business school in Mexico and ranks 108th in the CEOWORLD magazine’s best business schools in the world for 2019 rankings.
- INCAE Business School, Costa Rica: Ranked 109th in the world in the 2019 CEOWORLD magazine’s best business schools in the world ranking. The school offers management degrees in marketing, economics, accounting, and more.
- IAE Business School, Argentina: Ranked third in the regional top 10 ratings and has one of the biggest alumni networks in Latin America. The institute ranks third in return of investment and fourth in the region for employability and for diversity.
- ESAN Graduate School of Business, Peru: Ranked top in the region for providing world-class MBA education for the locals as well as the international students. The Institute tops the region in return of investment and offers impressive placement options.
- IPADE Business School, Mexico: Founded in 1967, IPADE has produced some of the country’s top management leaders. It ranks third for employability, fourth for entrepreneurship, and offers great curriculum for the global students.
- FIA Business School, Brazil: As the only Brazilian university in top global rankings, FIA Business School offers amazing MBA opportunities for international students. The 2019 CEOWORLD magazine’s best business schools ranking placed FIA Business School as the #113 best MBA in the World.
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