Elon Musk-Led Tesla To Build New Gigafactory in Mexico, Mexican President Confirms

Electric car maker Tesla has factories in California and Texas in the United States, Berlin in Germany and Shanghai in China.

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Tesla Inc will build a new plant in northern Mexico, the country's president said on Tuesday (February 28), marking a push by the electric vehicle maker to broaden operations outside the U.S. in a deal said by a source to be worth at least $1 billion. Without providing details, President Andres Manuel Lopez Obrador said "the whole Tesla company" was coming to Mexico, describing the investment as an "automotive plant" that would be "very big" and noting that potential investment in batteries was still pending. Tesla did not immediately reply to a request for comment.

Lopez Obrador's announcement of the plant in the Monterrey metropolitan area dispelled recent concerns that he could upend the investment by imposing conditions on the company due to problems over a lack of water in the arid border region. The initial investment will be worth around $1 billion and further phases could bring total spending to $10 billion, according to a Mexican source with knowledge of the matter.

The company has car factories in California and Texas in the United States, Berlin in Germany and Shanghai in China. Tesla Chief Executive Elon Musk for months has said the EV maker will announce a new factory, and he is set to discuss expansion plans, next-generation vehicle platforms and other topics at an "Investor Day" event on Wednesday (March 1).

The news is a boost for Mexico, which is working to establish itself as a hub for the so-called nearshoring of investment - capitalizing on geopolitical tensions and supply- chain disruptions caused by the COVID-19 pandemic by luring manufacturing capacity to North America, and away from Asia.

Lopez Obrador said the two sides had reached agreement after a call with Musk on Monday, following a separate conversation he said the two held late last week. The plant will be built in Santa Catarina in the greater Monterrey area, said the municipality's mayor, Jesus Nava, echoing reports that have circulated for weeks.

Mexican-made electric cars shipped to the United States qualify for subsidies provided by the Biden administration to boost EV adoption, according to industry officials. The call between Musk and the Mexican president took place after Lopez Obrador had on Friday stirred fears that he could block the investment in Monterrey if water was scarce there.

The president said Musk had understood the challenge posed by water scarcity, and that the company would be making a series of commitments as part of the deal. The discussions around Tesla have been a major test of how investors responded to Lopez Obrador's resource nationalism, which has persistently stirred misgivings among business groups.

Speculation about Tesla going to Mexico has circulated for months, and the plant is set to become one of the major investments of the Lopez Obrador administration. Mexico received its highest foreign direct investment inflows for years in 2022, official data showed, as businesses took advantage of a lower-cost and skilled work force that has made the country a global center of the car industry.

However, overall investment has been held back by companies unsettled by Lopez Obrador's efforts to strengthen state control of the energy market at the expense of private capital.