Tesla Could Start Making Cars in Mexico Next Year, Governor Says

Tesla’s new factory in the Mexican state of Nuevo León will cost $5 billion, will employ up to 7,000 people and could start churning out cars as early as next year, the state’s governor said on Friday.

Tesla announced this week that it planned an assembly plant in Mexico — its fifth worldwide — but provided few details about the investment, including how much it would spend, when construction would start, how many people would work at the factory or how the company would deal with regional water shortages.

Samuel García, Nuevo León’s 35-year-old governor, filled in some of the blanks. He said Tesla executives had told him that the factory — outside Monterrey, the state’s capital — could grow to be the company’s largest, producing not only cars but also batteries, semiconductors and software. Over time Tesla could double or triple the initial $5 billion investment, Mr. García said in a telephone interview.

“These opportunities, I think they happen once every 100 years,” he said.

Tesla’s plans in Mexico could help make the country a central player in the development of lithium and lithium-ion batteries in the Western Hemisphere. Mexico has one lithium mine under development in the northwestern state of Sonora, and the Tesla plant could encourage the country to undertake more projects.

Latin America has lots of lithium, and Chile is a major producer of the metal. But efforts to mine it in Argentina and Bolivia have been less successful.

President Andrés Manuel López Obrador of Mexico is a strong proponent of oil production, and has been criticized for being slow to embrace green energy. But Mr. García, who is not a member of Mr. López Obrador’s party or one of the primary opposition parties, said he was satisfied that the president supported investment in lithium.

It seems unlikely that any Tesla factory will surpass the company’s plant in Shanghai, which serves the fast-growing Chinese market and exports vehicles to other Asian countries and Europe.

Tesla did not respond to a request for comment.

Still, Mr. García’s comments suggest that the Tesla factory will be a centerpiece of the company’s operations, allowing the company to build cars more cheaply than it could in the United States and better respond to growing competition from established automakers like General Motors and Volkswagen. Those companies already offer electric vehicles that cost less than Teslas, like the Chevrolet Bolt and the Volkswagen ID.4, and are planning to sell many more mass market models in the coming months.

Volkswagen announced a new challenge to Tesla’s dominance of the electric vehicle market on Friday, saying that it would spend $2 billion on a factory near Columbia, S.C., to produce pickup trucks and sport utility vehicles under the Scout brand. The German carmaker is reviving the U.S. off-road vehicle brand that was used by International Harvester in the 1960s and ’70s. Scouts were among the first mass-produced off-road vehicles, which have become a lucrative segment of the U.S. auto market. Tesla, so far, does not make off-road vehicles.

Tesla executives said Wednesday during an investor presentation that the Mexico factory would produce a new vehicle priced below the Model 3, which starts at $43,000 in the United States. The company has not unveiled a design for the vehicle or disclosed other details, but its effort in Mexico could help attract a wider customer base.

The company’s investment in Mexico is part of a trend by American manufacturers to reduce their dependence on China while keeping costs low. Mexico has car and auto parts factories that produce Fords, Chevrolets, Volkswagens, BMWs and many other cars.

Under the Inflation Reduction Act passed by Democrats last year, electric cars and batteries made in Mexico are eligible for federal incentives not available to vehicles made in Asia or Europe.

Vehicles made in Mexico have long been shipped to the United States and Canada duty free. Tesla, like other large manufacturers, will have its own lane at the border allowing trucks to clear customs in minutes rather than hours.

Mr. García said he had been told by Tom Zhu, who leads Tesla’s factory operations, that the company wanted to build the plant faster than its Shanghai facility, which began producing cars in late 2019, less than a year after breaking ground. Mr. Zhu oversaw construction of the Chinese plant, and his record there explains why Elon Musk, Tesla’s chief executive, put him in charge of factories worldwide.

“He told me that he was very optimistic that he will break again his record,” Mr. García said, referring to Mr. Zhu.

The governor said Tesla had received the needed state approvals and that it was sending teams to begin work on a site in Santa Catarina, a city adjacent to Monterrey. Tesla needs federal permits, Mr. García said, but he expressed optimism that those would be granted soon.

Monterrey, about 140 miles from a major U.S. border crossing, is a manufacturing hub. Its explosive population growth has strained public services, particularly the water supply. Last year, some neighborhoods went weeks without running water.

Auto body painting equipment, essential to the manufacturing process, uses lots of water, raising the question about how Tesla would justify straining Monterrey’s resources while portraying itself as an environmental pioneer.

Mr. García pointed to an array of new infrastructure projects, including an aqueduct and dam, that he said would ensure a steady supply of water. Tesla’s factory will use recycled water, he added.

Monterrey gets most of its energy from natural gas, but Mr. García said Tesla would provide impetus for the region to switch to green energy.

Tesla’s investment will be part of a transition, Mr. García said, “from fossil fuels to renewable energy for our state and for our country, Mexico.”

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