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 providing details, President Andrés Manuel López Obrador said that “the whole of Tesla” was coming to Mexico, describing the investment as a “car factory” that would be “very large” and noting that potential investment in batteries was still pending.

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

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 immediately 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.

Tesla CEO Elon Musk has said for months that the electric vehicle maker will announce a new factory, and is set to discuss expansion plans, next-generation vehicle platforms and other topics at its “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.

Lopez Obrador said the two sides reached an agreement after a phone call with Musk on Monday, after a separate conversation he said the two sides had late last week.

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

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.

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 nationalism about resources, which has consistently raised suspicions among business groups.

Speculation about Tesla going to Mexico has been circulating for several months, and the plant is set to become one of the main investments of the Lopez Obrador administration.

Mexico received its highest inflows of foreign direct investment in years in 2022, official data showed, as companies benefited from a low-cost, skilled workforce that has made the country a global hub for the auto industry.

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.

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

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