MEXICO CITY, Feb 28 (Reuters) – Tesla Inc ( TSLA.O ) will build a new plant in northern Mexico, the country’s president said on Tuesday, marking a push by the electric car maker to expand operations outside the United States in a deal said . of a source to be worth at least $1 billion.
Without giving details, President Andres Manuel Lopez Obrador said “the entire Tesla company” was coming to Mexico, describing the investment as a “car factory” that would be “very big” and noting that potential investments in batteries were still under consideration.
Lopez Obrador’s announcement of the plant in the Monterrey metropolitan area allayed recent concerns that he could cancel the investment by imposing conditions on the company due to water shortage problems 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.
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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 USA, Berlin in Germany and Shanghai in China.
Tesla CEO Elon Musk has said for months that the electric car maker will announce a new factory and that he will discuss expansion plans, next-generation vehicle platforms and other topics at an “Investor Day” event on Wednesday.
The news is a boost for Mexico, which is working to establish itself as a hub for so-called nearshoring of investment – taking advantage of 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 an agreement after a call with Musk on Monday, following a separate conversation he said the two held late last week.
“This will represent a significant investment and many, many jobs,” Lopez Obrador told reporters, saying Musk had been receptive to Mexico’s concerns and accepted the proposals.
The plant will be built in Santa Catarina in the greater Monterrey area, the municipality’s mayor, Jesus Nava, said, echoing reports that have been circulating for weeks.
“Santa Catarina wants the eyes of the world,” he said on Instagram. In another video, with the text “$10 billion” in bright red, Nava said Tesla’s investment would be five times the private investment in the municipality over the past decade.
Mexican-made electric cars shipped to the United States qualify for subsidies provided by the Biden administration to boost the use of electric cars, according to industry officials.
The conversation between Musk and the Mexican president took place after Lopez Obrador had raised fears on Friday that he could block the investment in Monterrey if there was little water there.
The president said that Musk had understood the challenge of water scarcity and that the company would make a number of commitments as part of the agreement.
The discussions surrounding Tesla have been a major test of how investors reacted to Lopez Obrador’s resource nationalism, which has persistently raised concerns among business groups.
Speculation that Tesla is going to Mexico has been circulating for months, and the facility is set to become one of the major investments of the Lopez Obrador administration.
Mexico received its highest inflow of foreign direct investment in years in 2022, official data showed, as companies took advantage of a cheaper and skilled workforce that has turned the country into a global center for the auto industry.
However, overall investment has been held back by companies wary of Lopez Obrador’s efforts to strengthen government control of the energy market at the expense of private capital.
Reporting by Dave Graham and Daina Beth Solomon in Mexico City Additional reporting by David Shepardson in Washington and Hyunjoo Jin in San Francisco Editing by Ben Klayman, Sharon Singleton and Matthew Lewis
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