Elon Musk’s plans to build a Tesla mega-plant in Mexico come into focus

Santa Catarina, a municipality with fewer than 310,000 inhabitants on the outskirts of the northern state of Nuevo León, is preparing to become the site of Tesla’s first mega-factory in Mexico. Almost two months after his first visit there, Elon Musk, Tesla’s Chief Executive Officer (CEO) and the second richest man in the world, is getting closer to announcing his final decision on the location of a giant electric car assembly plant in the borderlands. According to local media, the factory’s construction would require an 800-hectare space, as well as investment of over US$10 billion at different stages of the process. According to sources familiar with the negotiations, initially the factory would produce vehicle parts; however, the brand is considering manufacturing its more economical cars there later.

The first signs of Tesla’s impending arrival in Mexico came last October, when photographs of the billionaire with Nuevo León officials were leaked. In one of the pictures, Musk can be seen on a terrace talking with a representative from Nuevo León’s Ministry of Economy, Undersecretary of Investment Emmanuel Loo. In that meeting in Mexico, the current owner of Twitter was joined by Tesla’s Director of Business Development, Rohan Patel, Tesla-Mexico Sales Manager Eduardo Grandio and US Ambassador to Mexico Ken Salazar.

Musk has considered several locations in Nuevo León, including the municipalities of Apodaca and Pesquería, but one of Santa Catarina’s competitive advantages is its proximity to Austin, Texas, only about 230 miles from the epicenter of Musk’s business. If investment in Mexico is confirmed, the factory would be Tesla’s third mega-plant abroad, with one located in China and another in Germany, in addition to its US production network.

José Zozaya, Executive President of the Mexican Association of the Automotive Industry (AMIA) confirmed to EL PAÍS that Tesla representatives had contacted him months ago to discuss different issues related to the automotive sector. Although Zozaya did not share details about the conversation, he does say that it would be great news to announce the leading electric car manufacturer’s decision to set up shop in Nuevo León. “If confirmed, the good news in this case is that it would be a very large electric car plant and would position Mexico in the big leagues of electromobility worldwide,” he said.

The spokesperson for the automotive industry and former CEO of Kansas City Southern in Mexico adds that, in order to attract this enormous investment, the state and federal governments must guarantee that Tesla will have enough electricity, services, security and legal certainty to operate.

If this mega-factory is indeed built in Nuevo León, it will join other vehicle companies, such as Kia Motors and General Motors, as well as an array of companies that specialize in automotive supplies, like Katcon, which manufactures exhaust systems and catalytic converters. Fernando Turner, the CEO of Katcon, highlights that this interest shows that Mexico, specifically Monterrey, is an important automotive manufacturing hub, owing to its proximity to the United States, specialized labor force and network of suppliers. However, he also warns that it will pose infrastructure challenges. “The state and municipal governments have invested very little in infrastructure, so the state of Nuevo León and the federal government must invest more,” he concludes.

Officially, Nuevo León’s government has said that it won’t release any details about the meeting because of a confidentiality agreement. Nevertheless, clues about Tesla ending up in that northern state have emerged in dribs and drabs. In April, Nuevo León Governor Samuel Garcia visited Tesla’s factory in Austin and emphasized the logistical advantages that his state offers, such as its own lane at the US-Mexico border crossing to facilitate trade for local suppliers. “We’ve come to approve this agreement for all assembly and products, as well as all exported cars that are made in California and Texas, to cross over the Colombia bridge,” he said at the time.

The news that Tesla will soon set up a factory in Mexico comes a few days after it was reported that Mexico and Canada have won their trade dispute with the United States over the automotive sector’s rules of origin under the United States-Mexico-Canada Agreement framework. The case focuses on the nations’ interpretations of how to calculate the percentage of a vehicle whose parts come from all over North America. Although official confirmation is still pending, the ruling is expected to be announced in the next few days, and it will provide greater incentives for manufacturing auto parts in Mexico and Canada.

The possible location of the world’s leading electric car company in Mexico contrasts with its latest financial results. Tesla’s stock value has decreased by half in 2022. In part, this decline has coincided with liquidations made to finance Musk’s $44 billion acquisition of Twitter; it was also influenced by certain accidents involving the company’s vehicles. In addition, in its most recent financial report for the year’s third quarter, the company disclosed that it had difficulties in securing vehicle transportation and faced an increase in logistical costs.

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