Mexican government greenlights Tesla's gigafactory construction

Peng Chen, DIGITIMES Asia, Taipei 0

A billboard announcing Tesla's arrival in Mexico is seen in March 2023. Credit: AFP

Tesla can officially start building a gigafactory in Mexico, according to the Mexican government. The plant is expected to make the US$25,000 EV, the company's more affordable vehicle demanded by the slowing market.

According to Mexico-based Milenio, the country's federal environment ministry notified Tesla's legal representative in Mexico on December 11 that the government has approved land-use permits for the project.

The factory is located in Nuevo Leon, a northern state of Mexico. Reuters reported that the site will occupy about 645 acres of land. In October, Nuevo Leon governor Samuel Garcia said that Tesla and its suppliers will likely bring in US$15 billion of investment in the area.

The gigafactory in Mexico reportedly will begin production in 2025 and aims to produce one million cars annually. According to US-based Teslarati, the plant is expected to manufacture Tesla's more affordable EV with a price tag of around US$25,000. The vehicle will better meet consumer's needs as the demand for premium EVs has decelerated.

DIGITIMES Research said Tesla's Mexico plant is larger and has a higher production capacity than its factory in Shanghai. With the US EV market's potential, Tesla can expand its footprint in Mexico in the long term.

According to Reuters, although Tesla has yet to reveal the capital expenditure for the Mexican plant, the Nuevo Leon government said the project would cost over US$5 billion. The state government plans to spend over US$130 million building infrastructure like an electric power substation and roads.

Mexico has risen to be the world's seventh largest car producer, according to DIGITIMES Research. The country makes more than three million cars per year and exports 90% of them. Approximately 85% of the vehicle exports go to the US.

Jessie Lin, senior analyst with DIGITIMES Research, said the tension between the US and China makes Tesla bring its production back to North America. Manufacturing in Mexico can enjoy the tax benefits as the country signed the North American Free Trade Agreement. Moreover, transporting products from Mexico to the US is convenient.

The US EV market holds much potential. DIGITIMES Research estimated that the market will see 8.5 million EVs by 2030, providing Tesla tremendous space to seek further growth in North America.