Green light for Tesla plant in northern Mexico

MEXICO CITY, Feb 28 (Reuters) – Tesla Inc ( TSLA.O ) will build a new plant in northern Mexico, the country’s president said on Tuesday, signaling a push to expand operations outside the United States. Worth at least $1 billion.

Without giving details, President Andrés Manuel López Obrador said the “entire Tesla company” was coming to Mexico, described the investment as an “automobile plant” that would be “huge,” and noted that a potential investment in batteries was still pending.

López Obrador’s announcement of the plant in the Monterrey metropolitan area allayed recent concerns that he could impose conditions on the company and raise investment due to water shortages in the arid border region.

The initial investment will be worth about $1 billion, and subsequent phases could bring the total cost to $10 billion, the Mexican source said.

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Tesla did not immediately respond to a request for comment.

The company has car factories in California and Texas in the US, Berlin in Germany and Shanghai in China.

Tesla Chief Executive Elon Musk has said for months that the EV maker will announce a new factory, and is scheduled to discuss expansion plans, next-generation vehicle platforms and other topics at an “Investor Day” event on Wednesday.

The news is a boost for Mexico — 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 reached an agreement after a call with Musk on Monday, following a separate conversation he said the two had last weekend.

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“It will represent a significant investment and a lot of jobs,” López Obrador told reporters, adding that Musk acknowledged Mexico’s concerns and embraced its plans.

The municipality’s mayor, Jesus Nava, echoed reports that had been circulating for weeks that the plant would be built in Santa Catarina, in the greater Monterrey region.

“Santa Caterina will have the eyes of the world,” he said on Instagram. In another video, titled “10 Billion Dollars” in bright red, Nava said Tesla’s investment would be five times more than private investment in the municipality over the past decade.

According to industry officials, Mexican-made electric cars shipped to the United States qualify for subsidies provided by the Biden administration.

Water concerns

The call between Musk and Mexico’s president came after Lopez Obrador raised fears in Monterrey on Friday that water shortages could deter investment.

The president said Musk understands the challenge posed by water scarcity and that the company will make a series of commitments as part of the deal.

The debate surrounding Tesla was a key test of how investors responded to López Obrador’s resource nationalism, which continued to fuel suspicions among business groups.

Speculation has swirled for months about Tesla’s move to Mexico, and the plant is poised to become one of the Lopez Obrador administration’s major investments.

Mexico is set to receive its highest foreign direct investment inflows in 2022, making the country a global hub for the auto industry as businesses take advantage of low costs and a skilled workforce.

However, overall investment by unstable companies has been hampered by López Obrador’s efforts to strengthen state control of the energy market at the expense of private capital.

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Reporting by Dave Graham and Dayna Beth Solomon in Mexico City Additional reporting by David Shepherdson in Washington and Hyunju Jin in San Francisco Editing by Ben Clayman, Sharon Singleton and Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.

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