Tesla (TSLA:NSD) Looking at Mexico for New Gigafactory

New Gigafactory-Mexico

According to reports, Tesla Inc. has been eyeing Nuevo Leon, a northern Mexican state, as a potential location for building a new plant. However, Mexican President Andres Manuel Lopez Obrador has indicated that Tesla will be denied permits to build a plant in the region if water is scarce. His comments suggest that concerns over water supply could become a deal-breaker for Tesla’s plans near the U.S.-Mexico border, and underscore criticisms from analysts and investors that interference from Lopez Obrador’s government is undercutting Mexico’s potential as a nearshoring destination serving the U.S. market.

Lopez Obrador’s stance on the matter is clear. When asked if he would allow Tesla to open a plant in Nuevo Leon, he stated: “If there’s no water, no… Simply put, we don’t give out permits for that. It’s not feasible.” Lopez Obrador went on to praise Constellation Brands, a beer brewing company, for choosing to relocate to a state in southeastern Mexico after he withheld permits for their project in Baja California due to concerns about water consumption.

Lopez Obrador has also called out arid Nuevo Leon for its water scarcity, instead highlighting the benefits of Mexico’s poorer southern region where he has sought to increase development. While Tesla has not yet responded to the situation, the president’s comments suggest that the automaker’s plans may face significant hurdles if it chooses to pursue a factory in Mexico.

Why Mexico

There are several potential reasons why the company may be interested in setting up operations in Mexico:

  1. Proximity to the US market: Mexico’s location, with a shared border with the United States, makes it an attractive location for Tesla to produce and export vehicles to the US market. The country’s proximity to the US also makes it easier to ship parts and materials across the border.
  2. Access to talent: Mexico has a growing pool of skilled workers in the automotive industry, with many international automakers already operating factories in the country. This means that Tesla could have access to a talented workforce, without having to invest in training and development.
  3. Lower labor costs: Wages in Mexico are generally lower than in the United States, which could allow Tesla to produce vehicles more cost-effectively.
  4. Renewable energy resources: Mexico has abundant solar and wind resources, which could allow Tesla to power its factories with clean energy.
  5. Government incentives: The Mexican government has been actively promoting investment in the country’s automotive sector, and has offered various incentives to attract foreign automakers.

Overall, a Gigafactory in Mexico could offer Tesla a range of advantages, from lower costs to access to talent and government incentives, as the company looks to expand its manufacturing capacity and increase its global market share.

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