Morocco has the World's cheapest car production labour

From the newsletter

Labour costs for vehicle production in Morocco are the lowest globally, according to a recent report by Oliver Wyman consulting firm. While the global average labour cost to produce a vehicle is $880, it only costs $106 in Morocco, cheaper than even China, where labour costs $597. This has helped Morocco become a global automotive giant. 

• Labor costs account for about 5-10% of a vehicle's final assembly price, but when including the entire supply chain, they can reach around 20%. This put Morocco in a great position to attract investments to its auto industry, especially in electric vehicles. 

• Morocco is attracting huge interest from EV investors, particularly in battery production and EVs, especially from China. This presents an opportunity for Africa to produce more affordable EVs compared to those imported from international markets.

More details

• Labour costs for car production are lowest in Morocco at $106 per vehicle, followed by Romania at $273, then Mexico at $305, and Turkey $414, with Morocco offering the most competitive advantage for cost-effective manufacturing.

• As the demand for EVs rises, Morocco’s expanding automotive production capacity, which earned approximately $6.4 billion from car exports in 2023, provides a strong foundation for EV manufacturers looking to enter or grow in the African market.

• Establishing a plant in Morocco is not unique; companies like Peugeot, Renault have utilised the country’s low labour costs to produce vehicles for African and European markets. Similarly, General Motors, BMW, and Ford have utilised Mexico’s low labour costs to manufacture electric vehicles for the US market, benefiting from competitive pricing and proximity to key markets.

• Morocco’s geographical proximity to Europe, along with its stable trade agreements, makes it an ideal manufacturing base for exporting vehicles to both African and European markets. This strategic positioning reduces shipping costs, import duties, and enhances Morocco’s appeal as a gateway for EV manufacturers aiming to expand their market reach.

• The free trade agreements Morocco has in place with the EU offer preferential access to the European market, providing a significant advantage to tap into this lucrative region while avoiding some of the regulatory hurdles faced by other manufacturing locations.

• With a stable political environment and government support for green energy initiatives, Morocco is an attractive investment destination. Ongoing investments in renewable energy and electric mobility create a reliable foundation for EV manufacturers to establish long-term operations with access to both local and global markets.

• However, if the EU implements tariffs on Moroccan goods, including EVs, it could raise the cost of exporting vehicles to European markets, potentially affecting the price competitiveness of Moroccan-made EVs and reducing the country’s attractiveness for investors focused on low-cost production for export.

• Balancing its relations with both China and the West, while leveraging its strategic position in global supply chains, presents a challenge for Morocco. Investors will need to monitor these geopolitical shifts closely, as Morocco’s trade partnerships may need to evolve to manage risks and opportunities in this changing environment. 

Our take

• While the implementation of tariffs on Moroccan-made EVs by the EU may increase export costs, the impact on Morocco's labour cost advantage will likely be minimal. Labour costs in Morocco remain significantly lower than in most other manufacturing countries, ensuring that even with tariffs, Morocco will continue to be a cost-effective base for EV production.

• The vehicles produced in Morocco are typically sold at parity with those made in other countries, meaning the price point remains competitive in global markets, including Europe. This results in substantial profit margins for manufacturers, especially as Morocco’s low production costs enable EV producers to maintain high profitability while keeping retail prices in line with international competitors.

• EV manufacturing in Morocco is labour-intensive, with a large workforce involved in assembly, research, and development. As a result, an African OEM can significantly reduce costs due to the low labour rates, allowing them to allocate savings towards scaling and growth.