semiconductors

Introduction: The Ambition at the Crossroads

Mexico currently faces an unparalleled economic juncture. Global geopolitical dynamics, driven by nearshoring and the imperative to diversify supply chains, have positioned the country for a development opportunity that far exceeds simple assembly manufacturing. The potential to build high-value ecosystems in artificial intelligence (AI) and semiconductor fabrication—the foundational pillars of the modern global economy—could fundamentally redefine Mexico’s standing in international trade.

But, this critical ambition is currently being stalled by a single, deeply rooted structural factor in the national infrastructure: the capacity, quality, and, above all, the reliability of the National Transmission Grid (RNT) operated by the Federal Electricity Commission (CFE). The power grid, therefore, is not merely an operational prerequisite; it has transformed into the primary strategic constraint jeopardizing Mexico’s technological sovereignty and its potential qualitative economic leap.

I. The Tensions of Demand: World-Class Requirements

The AI and semiconductor fabrication (FAB) industries impose energy demands that Mexico’s legacy infrastructure is struggling to meet. These sectors not only consume power on a massive scale but also require it with a precision and resilience that approaches technical perfection.

A. The Exponentials of AI and Data Centers

The core engine of AI is the data center. These facilities, especially those dedicated to training massive models using Graphics Processing Units (GPUs), require a constant power flow comparable to that of entire cities. Large hyperscale data centers can demand between 100 MW and 300 MW of installed capacity, and the aggregate demand from this sector in Mexico is projected to multiply tenfold in the near future.

This demand possesses one non-negotiable quality: 24/7 availability. AI operations cannot tolerate interruptions. A micro-power cut is more than just an economic loss; it represents the possibility of compromising the integrity of critical data or nullifying the progress of computation processes that have required weeks of execution—an unviable vulnerability for the industry.

B. The Precision Mandate of Semiconductors

Semiconductor manufacturing plants are arguably the industrial environments most sensitive to power quality. In the fabrication of microchips, where tolerances are measured in nanometers, a micro-unit of voltage fluctuation or an interruption lasting mere milliseconds can prove catastrophic. Such an event can instantaneously ruin entire batches of silicon wafers valued in the millions of dollars.

Therefore, the key to attracting advanced semiconductor fabrication facilities (FABs, typically requiring between 50 MW and 150 MW each) does not lie solely in guaranteeing the volume of energy but in certifying a power quality that the CFE, given constraints in transmission and distribution, struggles to consistently assure within the most desirable industrial hubs. The promise of availability must, by necessity, be a world-class guarantee.

II. The CFE Infrastructure: From Support to Barrier

The National Electric System (SEN) operates under a structural pressure that positions it as the decisive bottleneck. This barrier manifests across three critical dimensions that undermine the confidence of high-technology investors.

A. Saturation of Transmission and Distribution

Mexico’s fundamental problem is not a lack of total generation capacity but the systemic inability to move that power efficiently, a responsibility that falls squarely on the RNT. This infrastructure, much of which is aging or designed for industrial patterns of a past century, has simply failed to evolve at the pace required by nearshoring.

The consequence is severe congestion in substations and distribution lines, particularly in the vital industrial corridors of the north and center (such as Nuevo León, Coahuila, and the Bajío region). This congestion translates into something tangible and costly: industrial park developers face wait times exceeding a year just to obtain connection feasibility. This delay has led to a troubling phenomenon: the proliferation of “Dark Buildings”—industrial warehouses completely finished and ready for operation but lacking physical access to electrical power.

B. Reliability, Risk, and the Unacceptable Interruption

Recent waves of blackouts and recurrent service interruptions demonstrate that the SEN is consistently operating at its operational limit. Obsolescence in the generation fleet and deficiencies in transmission elevate the risk of system failures.

For any corporation managing mission-critical computing processes or high-value production lines like FABs, this level of risk is unacceptable. A multi-billion-dollar investment cannot depend on a grid that offers systemic uncertainty. Compounding this is regulatory volatility, where the perceived prioritization of fossil fuel generation over renewable energy dissuades global investors who seek clarity, stable long-term pricing, and a predictable framework for operation.

C. The Sustainability Imperative (ESG Factor)

Leaders in the technology industry (from Google and Amazon to major chip manufacturers) have adopted rigorous corporate commitments regarding sustainability and governance (ESG), including net-zero carbon goals or the use of 100% clean energy.

To establish AI or semiconductor operations in Mexico, these investors require contractual guarantees that a substantial portion of their consumption will be sourced from renewables. The difficulty imposed on the interconnection of private wind or solar energy projects to the RNT, coupled with the CFE’s reliance on generation based on natural gas and fuel oil, creates a sustainability impediment that automatically excludes Mexico from the list of viable destinations for many of these investments.

III. The Strategic Cost: Sovereignty and Dependency

If the electric infrastructure issue is not addressed with a decisive, long-term state vision, the cost to Mexico will be dual and profound:

Firstly, it will result in the loss of the value-added nearshoring opportunity. High-demand and high-precision firms will simply divert their investments to markets that offer solid power grids and transparent regulatory frameworks, such as the United States (driven by the CHIPS Act) or established Asian ecosystems.

Secondly, it will perpetuate technological dependence. Without the necessary energy infrastructure to host, power, and train large-scale AI models, and without the capacity to manufacture advanced components, Mexico will be relegated to being merely a consumer and assembler of technologies designed and produced elsewhere. This outcome has a direct, negative impact on national technological sovereignty and the capacity of Mexican research centers to compete at the global frontier of knowledge.

Conclusion: From Bottleneck to Catalyst

The CFE grid represents the single most fundamental challenge to Mexico’s digital ascension. While recent investments in transmission grid modernization signal a positive step, the sheer scale of the challenge necessitates a true paradigm shift that transcends institutional inertia.

To transform this bottleneck into a powerful catalyst, Mexico must execute a strategic course of action centered on efficiency and openness:

Agile Regulatory Reform: It is imperative to simplify procedures and drastically reduce the timelines for connection and feasibility studies for high-demand industrial projects.

Focalized Transmission Investment: The reinforcement of the RNT must be specifically prioritized in the industrial corridors that are the heart of nearshoring and the potential base for technological ecosystems.

Facilitating Clean Energy Integration: Creating mechanisms that not only permit but actively promote the interconnection of private renewable energy projects to meet the ESG demand and the volume required by technological leaders.

Deployment of Smart Grids: The massive adoption of AI-based technologies for distribution optimization, loss reduction, and ensuring resilient voltage quality is essential for the mission-critical needs of the AI and semiconductor industries.

Mexico’s technological future hinges upon the resolution of the CFE dilemma. It is the key that, when turned, will either open or definitively close the door to high-technology development.

ASEAN is attempting to secure a foothold in the global semiconductor and electric-vehicle battery industries. Malaysia, Indonesia, and Thailand have each announced concrete industrial commitments that signal an ambition to move deeper into high-value manufacturing. These efforts carry strategic implications because semiconductors, power electronics, and batteries are essential inputs for artificial intelligence, renewable energy systems, and modern defense industries. The region now faces a growing set of geopolitical and engineering pressures that directly affect planned projects, cost structures, and national industrial strategies.

This piece documents the most significant national developments in 2024 and 2025, outlines precise vulnerabilities, and provides realistic mitigation measures for decision makers.

Strategic Context

In October 2025 China announced additional controls on rare-earth exports and related processing technologies. This decision briefly tightened the market for rare earth magnets and separated oxides that are crucial for EV motors and semiconductor equipment. Although Beijing later delayed parts of the policy’s implementation, the message was clear. Critical inputs can be restricted with little warning.

Meanwhile, the United States and its allies have continued to adjust export controls on chip-making equipment. Any further tightening directly affects the cost and feasibility of new packaging and test facilities across ASEAN. The strategic environment surrounding high technology has therefore become volatile and has placed pressure on firms hoping to expand into advanced electronics production.

Malaysia: Penang’s Advanced Packaging Ambitions

Malaysia is pursuing one of the most aggressive semiconductor upgrade strategies in Southeast Asia. Penang’s “Silicon Island” project and the new Green Tech Park represent a deliberate shift from assembly to higher-value packaging and design. Approved semiconductor-related investments reportedly exceeded RM 70 billion between January 2024 and June 2025. Investments include Infineon’s silicon carbide expansion and Carsem’s advanced packaging facilities for AI-related chips.

Advanced packaging and testing lines in Malaysia’s semiconductor clusters still depend on specialized lithography subsystems, ultra-high-purity precursor chemicals, and precision metrology equipment. These imports are increasingly vulnerable because Malaysia’s new export-control regime now requires notifications for high-performance AI chips and equipment, creating possible bottlenecks and compliance burdens. For example, Malaysia’s July 2025 directive made exporters notify authorities at least 30 days in advance when shipping U.S.-origin high-performance AI chips, signaling that regulatory headwinds may also apply upstream in tool and component supply chains. Without expedited import lanes, delays in receiving critical equipment would postpone factory commissioning in locations such as Penang, driving up capital costs through extended financing periods.

The Malaysian government must fast-track customs and import lanes for critical equipment, co-finance spare-parts pools for fabs, and invest in infrastructure near semiconductor clusters such as high-quality water, power reliability, and waste treatment. In parallel, public-private training centers should train large numbers of precision-manufacturing engineers.

Indonesia: Nickel Dominance and Downstream Battery Production

Indonesia has used its dominant nickel reserves to pull in major EV battery investments. The flagship project is the nearly USD 6 billion joint venture between Contemporary Amperex Technology Co. (CATL) and Indonesia Battery Corporation in West Java. According to a June 2025 Reuters report, the facility is scheduled to begin operations by late 2026 with a starting capacity of 6.9 GWh, with an expansion path toward 15 GWh or more. This scale demonstrates Indonesia’s ambition to anchor the region’s battery ecosystem, but it also highlights the limits of upstream advantage.

Despite controlling the raw material, Indonesia’s battery value chain is not yet integrated. The CATL–IBC project will still depend heavily on imported precursor chemicals, cathode active materials, and high-precision manufacturing equipment. Reuters noted that while Indonesia has rapidly expanded nickel processing, the country has not built the full suite of midstream capabilities required for stable cell production. Critical reagents and machinery remain tied to suppliers in China, South Korea, and Japan.

This dependency introduces substantial strategic risk. A February 2025 C4ADS report found that Chinese companies control roughly 75 percent of Indonesia’s nickel-refining capacity. That concentration means that although production occurs on Indonesian soil, operational control, technology flows, and strategic decisions often originate in external corporate or policy environments. Any shift in Chinese domestic policy, export priorities, or commercial strategy could ripple through Indonesia’s downstream battery plans and disrupt cell production timelines.

Given these vulnerabilities, Indonesia must accelerate the development of domestic precursor and cathode material facilities to reduce exposure to foreign suppliers. Battery-plant construction should also be sequenced with upgrades to grid capacity, wastewater management, and environmental controls, since these engineering systems remain bottlenecks in several industrial zones. Finally, manufacturers should design production lines with modularity so they can switch battery chemistries if global markets or reagent availability changes.

Thailand: Converting an Automotive Giant into an EV Hub

Thailand is moving quickly to convert its dominant automotive industry into an electric-vehicle hub. The Board of Investment’s EV 3.5 package, announced in 2025, offers tax incentives, consumer subsidies, and import-duty relief through 2027 for manufacturers that commit to local production. This policy has already shifted investment patterns. BYD opened a USD 490 million plant in Rayong in mid-2025 with capacity for 150,000 EVs annually, marking one of the largest EV manufacturing commitments in Southeast Asia. Domestic EV registrations also surged to roughly 70,000 units in 2024, up from fewer than 10,000 in 2021.

Despite these gains, Thailand’s EV ecosystem remains dependent on imported battery cells, semiconductor components, and rare-earth magnets. ASEAN Briefing’s September 2025 assessment found that Thailand still lacks mid-stream capabilities such as cathode production, electrolyte processing, and advanced battery-testing facilities. This dependence exposes the sector to the same vulnerabilities faced by regional semiconductor clusters.

These components also move through logistics systems designed for traditional automotive supply chains. Laem Chabang Port remains optimized for bulk auto parts rather than high-value lithium-ion cells. EV assemblers reported delays in 2025 due to congestion and manual customs checks on sensitive components during peak export periods. Even minor slowdowns disrupt just-in-time assembly and raise operational costs.

To protect its emerging EV advantage, Thailand must expand bonded logistics zones for battery components, accelerate port digitization, and cooperate with ASEAN partners to harmonize battery standards. Without these measures, Thailand’s EV ambitions will remain vulnerable to supply-chain friction and regulatory fragmentation.

Regional Risk Map

1. Material-concentration risk. China’s export controls on rare earths and magnets create leverage points. ASEAN must map critical-element dependencies and invest in regional recycling and stockpiles.
2. Equipment-and-technology risk. Restrictive export regimes on chip-making tools raise project execution risk. ASEAN governments should establish pooled spare-parts procurement, trusted procurement corridors, and diplomatic waiver channels.
3. Infrastructure-and-skills risk. All three countries face co-investment requirements in power, water, waste, and vocational training aligned with advanced manufacturing. ASEAN-level funding mechanisms and mutual recognition of professional certifications would reduce friction.

ASEAN stands at a pivotal moment. The opportunities to capture semiconductor back-end, EV battery manufacturing, and higher-value electronics are real. Malaysia’s move into advanced packaging, Indonesia’s downstream battery strategy, and Thailand’s EV pivot are promising. They are also fragile. Each depends on imported tools, materials, and specialized skills that can be disrupted by geopolitical shifts.

The region’s success will depend on how quickly leaders can reduce those vulnerabilities through strategic infrastructure investment, targeted industrial policy, regional standardization, and coordinated risk management. Without these measures, factories across ASEAN will remain profitable in calm markets but exposed during periods of geopolitical tension.

U.S. President Donald Trump has targeted China with a cascade of tariffs on imports worth billions of dollars in 2025, aiming to narrow the trade deficit, revive domestic manufacturing, and curb the fentanyl trade. The year has seen a mix of escalating tariffs, export controls, partial trade truces, and diplomatic talks as both sides navigate the high-stakes economic and geopolitical confrontation.

Timeline of Key Events:

November 11: China announces it will broaden access and investment opportunities for U.S. companies, especially in the services sector.

November 10: China pauses port fees on U.S.-linked vessels and suspends sanctions on affiliates of South Korean shipbuilder Hanwha Ocean. The FBI director visited China to discuss fentanyl and law enforcement issues.

November 9: China suspends its ban on gallium, germanium, and antimony exports to the U.S., though licences are still required under dual-use controls.

November 7: Export control measures imposed on October 9, including restrictions on rare earths, lithium battery materials, and super-hard materials, are suspended. China begins forming a new rare earth licensing regime to potentially speed up shipments. U.S. soybean and log import licences are restored.

November 6: China purchases U.S. farm products, including wheat and sorghum shipments. COFCO holds a soybean procurement signing ceremony.

November 5: Beijing suspends retaliatory tariffs on U.S. imports from November 10, including farm goods, while maintaining some duties in response to Trump’s “Liberation Day” tariffs.

October 30: Trump and Xi Jinping strike a new trade truce in South Korea, agreeing on tariff reductions, increased U.S. soybean purchases, and measures against illicit fentanyl trade.

October 25-26: Malaysia talks produce a trade deal framework to be finalized by leaders after U.S. and Chinese officials meet.

October 17: U.S. State Department condemns Chinese sanctions on Hanwha Ocean as coercive.

October 15-16: U.S. officials criticize China’s expanded rare earth export controls; Apple pledges investment in China.

October 14: Both nations impose additional port fees; China sanctions five U.S.-linked Hanwha Ocean units.

October 12-13: China calls new U.S. tariffs hypocritical; U.S. negotiators maintain Trump-Xi talks are on track.

October 10: Trump announces additional levies on imports and export controls on critical software, while threatening Boeing-related measures. China investigates Qualcomm over its purchase of Israeli Autotalks.

October 9: China widens rare earth export controls; U.S. plans to ban Chinese airlines from overflying Russia.

October 1-August 11: Both sides discuss soybean purchases, extend tariff truces, and negotiate rare earth and AI chip licences.

July-June: Framework deals reached for rare earths and magnets; trade truce discussions continue with limited breakthroughs.

May-April: U.S. and China escalate tariffs repeatedly, targeting key goods and tech sectors. Measures include punitive duties, export restrictions on dual-use items, and sanctions on companies.

March-February: Tariffs on Chinese imports rise sharply, with China retaliating on U.S. agricultural exports and key industrial sectors.

Why It Matters:
The trade war has disrupted global supply chains, affected technology access, and influenced agricultural markets. It also carries geopolitical consequences, particularly for U.S.-China relations and for allies in Asia relying on stable trade flows. Rare earths, semiconductors, and AI chips essential for defense and emerging technologies are central to the strategic stakes.

United States: Trump administration, Treasury Secretary Scott Bessent, Trade Representative Jamieson Greer.

China: President Xi Jinping, Vice Premier He Lifeng, negotiators Li Chenggang and industry regulators.

U.S. Companies: Apple, Nvidia, Boeing, Qualcomm, among others, affected by tariffs, export controls, and investment restrictions.

Global Markets: Critical minerals, rare earths, semiconductors, agricultural commodities, and shipping sectors.

What’s Next:
Despite temporary truce agreements, negotiations remain fluid. Both countries must finalize terms for rare earths, agricultural imports, tariffs, and enforcement mechanisms. Any failure to do so could trigger new rounds of tariffs, impact global supply chains, and increase diplomatic tensions. Private investment and corporate strategy will continue to pivot in response to policy changes.

With information from Reuters.