Electric car maker Tesla will build a plant in the northern Mexican city of Monterrey, ending doubts about the possibility of canceling investments due to conditions imposed by the government.
President of Mexico Andrés Manuel López Obrador announced the new plant on Tuesday after talking with Tesla chief executive Elon Musk, suggesting he backtracked on previous calls to redirect investment to less industrialized parts of the country.
“Good news, yes company Tesla coming,” the populist president told a morning press conference. “Part of the battery is still waiting, but [its] the whole car plant, which I understand will be very large.”
“He [Musk] was very receptive, understood our concerns and accepted our proposals, which will be known tomorrow,” he added.
Tesla did not immediately respond to a request for comment, but more details about the project are expected to be released at Wednesday’s investor day. The amount of the transaction was not immediately disclosed.
Tesla’s investment is the latest in electric cars in mexico after the country was included in billions of dollars of environmental subsidies under Washington’s Inflation Reduction Act. US President Joe Biden’s legislation has sparked tensions with Europe, which claims it could unfairly divert investment from the region.
“Without the IRA, I doubt this would have happened,” said Carlos Serrano, chief economist at bank BBVA Mexico, adding that the legislation means the US, Mexico or Canada were the best options for Tesla. “Meanwhile, Mexico has advantages in competitiveness, a skilled workforce and a sophisticated supplier industry.”
While López Obrador’s government seeks to turn Mexico into a “hot spot” for investment, he has also tried to influence the investment decisions of large companies, which the private sector says has eroded confidence in the economy. He imposed significant conditions on the sale of his Mexican retail bank and canceled permits and projects with which he disagreed.
His supporters say he is removing suspicions of corruption in investments approved by previous governments and is trying to make development more sustainable. The government has pledged to increase investment in poorer southern states to address huge regional disparities, and pressed relocation companies.
López Obrador suggested last week that he might not give Tesla a permit if it pushes ahead with plans to build a plant in Monterrey due to the city’s dire water shortage. But on Tuesday, he said the company has committed to using recycled water at the new plant.
The proximity of the northern part of the country to the US, an educated workforce and excellent infrastructure mean that it has attracted the lion’s share of industrial investment. Since 2005, the population of the Monterrey metropolitan area has grown by more than 40 percent.
Mexico has won [Nuevo León] we won, we all won!” Samuel Garcia, governor of the state of Nuevo Leon, where Monterrey is located, tweeted on Tuesday.
Tesla’s investment bolsters Mexico’s position as an important beneficiary of companies building factories closer to the US amid supply chain disruptions and trade tensions with China.
Biden’s $369 billion IRA allows electric vehicles assembled in Mexico and Canada to qualify for US subsidies. Tax incentives are also available for suppliers of electric vehicle batteries and critical minerals to Mexican companies.
Earlier this month, German automaker BMW said it would invest 800 million euros in Mexico to expand electric vehicle production.
The Monterrey plant, a few hours from the Texas border, will be the first Tesla plant in Latin America. The company has four factories in the US and one each in China and Germany.