On Wednesday March 1st, Elon Musk announced that Tesla will open a new gigafactory in Mexico’s northern state of Nuevo Leon. According to Reuters, is set to be the biggest electric vehicle plant in the world with an investment of more than $5 billion. At an Investor Day event Austin, Texas, Musk stated that Tesla will increase output at all of its gigafactories in an attempt to cut assembly costs by half in future generations of cars.
According to Mexican President Andres Manuel Lopez Obrador, the state of Nuevo Leon was chosen after a couple of calls with Musk, and the plant will be established in the city of Monterrey, although there will be a series of commitments to address water scarcity in the region, such as the use and treatment of recycled water within the factory’s processes, including for painting the cars.
“There is already an understanding,” said Lopez Obrador at a press briefing. “Yes, they are going to invest in Mexico and the plant will be in Monterrey, with a series of commitments to address the problem of water shortage”.
Musk’s interest in investing millions of dollars in Mexico comes as the country begins to claim the spotlight as a hotspot for nearshoring. With its low costs and location next to the US market, Mexico emerged as an attractive alternative, which in the wake of the pandemic has attracted manufacturing in sectors such as automobiles, electronics, textiles and furniture.
The new plan will be supplemental to the output of all the other factories.Elon Musk
In the last year, at least a dozen companies have landed in Monterrey including Tesla suppliers: the first plant outside Asia of Taiwanese electronics company Quanta Computer, Chinese company Noah Itech and an expansion of Italian brake manufacturer Brembo. Tesla’s new plant will be in a municipality adjacent to Monterrey.
Tesla produced 1.37 million vehicles last year, an annual increase of 47%, thanks in part to the new plant called Giga Texas, which opened in April of last year and which today assembles the Model Y.
At the end of January 2023, a spokesperson for the Mexican presidency revealed to Reuters that the company was also considering opening an assembly plant near Mexico City, close to the new Felipe Angeles Airport (AIFA).
A few days later, Foreign Minister Marcelo Ebrard confirmed Tesla’s plans to invest in Mexico, as there had already been talks for more than a year and a half, although until then the decision of where to set up shop belonged solely to the company.
In addition to Nuevo Leon, another of location was Hidalgo, with AMLO himself commenting that the north was not a good option for the company, since there was not much water and domestic consumption should be prioritized over other activities. Nuevo Leon’s government said that this would not be a factor that could affect investment talks in the state.
“The priority is that Monterrey will not lack water for domestic consumption and we will also direct growth towards regions where there is water,” said Lopez Obrador. “There is going to be technological development, not only in the plant, but also in water management”.
Samuel Garcia, governor of Nuevo Leon, celebrated Tesla’s arrival in his state via Twitter. García, prior to the president’s conversation with Elon Musk, had already assured that Nuevo León was prepared to supply water to Tesla’s factory without compromising the volume destined for human use. “We are going to work hand in hand with Tesla so that they can clarify and verify that they do not use water for human consumption. And that the water they do use is treated and is minimal.”
In his last quarterly results conference, Musk highlighted that demand far exceeds production, so actions aimed at increasing their levels of assembled units is something the company is thinking about very carefully.
Tesla is the seventh automaker to announce investments to assemble electric vehicles in Mexico, in addition to Ford, General Motors, Audi, Stellantis, Volkswagen, and BMW.