Tesla’s factory gets the green light in northern Mexico

The country’s president said on Tuesday that Tesla will build a new factory in northern Mexico, in a move by the electric car maker to expand operations outside the United States in a deal. According to the source, its value should be at least one billion dollars.

Without giving details, President Andrés Manuel López Obrador said that “the whole of Tesla” was coming to Mexico, describing it as a “car factory” that would be “very big” and noting that potential investment in batteries was still pending.

Two Mexican officials said the new plant will produce cars. Someone said that it was expected to produce some kind of SUV. The Model Y is Tesla’s best-selling SUV.

López Obrador’s announcement of the plant in the metropolitan area of ​​Monterrey allayed recent fears that he could upset investment by imposing conditions on the company over water shortage problems in the arid border region.

“This will represent a great investment and many jobs,” López Obrador told reporters, adding that CEO Elon Musk was receptive to Mexico’s concerns and accepted its proposals.

According to a Mexican source familiar with the matter, the initial investment will be worth about $1 billion, and the further stages may bring the total spending to $10 billion.

Tesla did not respond to a request for comment.

The company has auto plants in California and Texas in the United States, Berlin in Germany and Shanghai in China.

Musk has said for months that the electric car maker will announce a new factory, and is set to discuss expansion plans, next-generation vehicle platforms and other topics at an “Investor Day” event on Wednesday.

The news is a boost for Mexico, which is positioning itself as a center for so-called approach investment — capitalizing on geopolitical tensions and supply chain disruptions caused by the COVID-19 pandemic by luring manufacturing capacity into North America, and away from Asia.

Mexico and Tesla reached an agreement after a call with Musk on Monday, López Obrador said, following a separate conversation he said the two had late last week.

The mayor of the municipality, Jesus Nava, said the plant will be built in Santa Catarina in the greater Monterrey area, echoing reports that have been circulating for weeks.

“Santa Catarina will have the eyes of the world,” he said on Instagram. In another video captioned “$10 billion” in bright red, Nava said Tesla’s investment would be five times the amount of private investment in the municipality over the past decade.

Mexican Foreign Minister Marcelo Ebrard hailed the news on Twitter, describing it as the result of 14 months of “patient work”.

Electric vehicles made in Mexico shipped to the United States are eligible for subsidies offered by the Biden administration to boost electric vehicle adoption, according to industry officials.

Water concerns

The call between Musk and the Mexican president came after Lopez Obrador on Friday raised concerns that he could hinder investment in Monterrey if water is scarce there.

The president said Musk understood the challenge posed by water scarcity, and that the company would make a series of commitments as part of the deal.

The Tesla discussions have been a major test of how investors will respond to Lopez Obrador’s nationalization of resources, which has raised suspicions among business groups.

Ana Moreno, an analyst at the Mexico-Ivaloa think tank, said that although the Tesla matter appears settled, the episode sent a message to investors that they may not be able to move forward with projects without López Obrador’s personal approval.

“It could happen with other types of investment that somehow touch or conflict with the president’s agenda,” she said.

Speculation about Tesla going to Mexico has been circulating for months, and the plant promises to be one of the key investments for the Lopez Obrador administration.

Mexico recorded its highest foreign direct investment in years in 2022, as companies benefit from a skilled, low-cost workforce as well as a free trade agreement with the United States that has made the country a global auto hub.

However, aggregate investment has been hampered by companies that have not been stabilized by López Obrador’s efforts to consolidate state control of the energy market at the expense of private capital.

Reporting by Dave Graham and Dayna Beth Solomon in Mexico City Additional reporting by Diego Orr in Mexico City and David Shepardson in Washington and Hyunju Jin in San Francisco Editing by Ben Kleiman, Sharon Singleton and Matthew Lewis

Our standards: Thomson Reuters Trust Principles.