Tesla Inc.’s Mexican plant will probably require $10 billion in investments in several phases, a game changer for the Nuevo Leon state where it will be based, as global companies rush to relocate to the country’s north, Governor Samuel Garcia said.
Tesla picked Nuevo Leon, Mexico’s industrial cluster hub close to the Texan border, because of its lower costs, availability of workforce and presence of key parts suppliers, beating rival offers from Germany, the Netherlands, Colombia and Indonesia, among other countries, Garcia said in an interview. The announcement will work as an anchor to attract other foreign investments, he said.
“This is a game-changer for a transition from traditional industry to an industry of the future, a green industry,” Garcia said via video from his office in Monterrey, Nuevo Leon’s capital, just about 137 miles (221 kilometers) from the US border. “This will transform our state and break all of the economic records.”
During its investor day earlier this week, Tesla confirmed the start of a new Gigafactory for electric vehicles to be built on the outskirts of Monterrey but provided few details on the strategy or scope of the project. The company has invested roughly $28 billion to date globally, and would probably end up spending between $150 billion and $175 billion to achieve its goal of producing 20 million cars per year.
Chief Executive Officer Elon Musk previously said that that a vehicle-development team was working on a next-generation platform that would cut in half Model 3’s building cost. Tesla didn’t respond to request for comment sent after business hours Thursday.
Business Euphoria
The Mexico investment announcement, made first by President Andres Manuel Lopez Obrador, triggered euphoria in business and political circles because it’s seen as a symbol of the country’s manufacturing opportunity in the post-pandemic world.
With China hit by US tariffs and geopolitical tensions between the world’s two largest economies, many companies are seeking to relocate from Asia and Europe to Mexico, a process commonly known as nearshoring, to tap the benefits of the North America free trade agreement, or USMCA, and export to the US market from a closer distance.
Tesla’s initial spending in the plant will involve between $5 billion and $6 billion in a first stage before likely reaching a $10 billion investment in different phases, the governor said.
Garcia, 35, also said he is in talks with other multinationals to establish “big investments” in Nuevo Leon, declining to provide details. Foreign investment in the state is set to triple this year to as much as $12 billion from over $4.3 billion in 2022, he said.
“USMCA is a blessing for Mexico,” Garcia said, noting that the tariffs imposed on Chinese exports under the presidency of Donald Trump were a “watershed” for companies to return to North America. “That’s when a lot of nearshoring came to Nuevo Leon.”
The effects of the growing demand are already being felt, with some industrial park managers saying they are running out of space to establish new projects. Garcia played down the concern, saying that parts providers would have no trouble in finding additional space in Nuevo Leon, where there is plenty of land.
Tesla’s arrival in Mexico could generate about $15 billion in new exports to the US, equivalent to a 3.5% increase, if the electric vehicle ecosystem is further developed, according to a Morgan Stanley research note. A wave of manufacturing investments, helped by the US Inflation Reduction Act, could increase total exports by $80 billion to $150 billion within five to six years, the note published Thursday said.
Nuevo Leon, one of the top destinations of foreign businesses in Mexico, already has a border lane near Laredo, Texas, specially dedicated to Tesla suppliers, which were already arriving to the region even before the official investment announcement, Garcia said.
During the interview, the governor rebuffed Lopez Obrador’s concerns over the lack of water after last year’s drought left Monterrey nearly dry. A water treatment plant would supply Tesla with the 80 liters of water per second that it needs, which is a small fraction of the state’s capacity, Garcia said Thursday.
Critics including environmental groups have continued to raise concerns about the lack of long-term planning over the region’s water supply and the negative effect shortages could have on residents.
Garcia, a rising star in Mexican politics, surprised by winning the Nuevo Leon state election in 2021 at just 33 years old, thanks in part to his savvy social media use, including Instagram, and message against the old political guard. Now Tesla’s arrival to Nuevo Leon is giving him heightened media exposure on a national level.
“Tesla is symbolic for what it is,” he said. “Then you look at the amount and you say, it’s not just symbolic, it’s historic.”
