Tesla set to confirm new factory in Mexico after striking water deal

(C) Reuters.

By Geoffrey Smith

Investing.com — Tesla (NASDAQ:TSLA) is set to confirm on Wednesday that it will build an assembly plant in Mexico, after President Andres Manuel Lopez Obrador appeared to drop some of his objections to the electric carmaker’s plans.

At a news conference on Tuesday, Lopez Obrador had claimed that “the Tesla company is coming”, without giving away too much further detail. More information is expected from Tesla’s Investor Day event later on Wednesday.

The investment is set to be the biggest yet in Mexico to benefit from the Biden Administration’s Inflation Reduction Act, which also made investments in the U.S.’s southern neighbor eligible for subsidies. The mooted $5 billion investment will dwarf the $900M earmarked last month by rival BMW (ETR:BMWG) for a new EV facility at its operations in San Luis Potosi.

The plant will be located in Monterrey in northern Mexico, some 375 miles from Tesla’s facilities in Austin. As such, CEO Elon Musk could in theory drive there in one of the company’s Model S cars without having to recharge.

AMLO, as Mexico’s left-wing President is known, had previously tried to persuade Tesla to build the plant in one of the country’s poorer southern provinces, aiming to reduce regional wealth imbalances that stoke high levels of migration both internally and further north to the U.S.

The Mexican authorities – like those in Germany – had also raised concerns about Tesla’s water needs, a particularly acute concern given the scarcity of natural water sources in the region. Monterrey’s water needs have risen sharply as its population has increased by some 40% in the last decade.

AMLO said Tesla has now promised to use recycled water at the plant.

AMLO said that the assembly plant won’t include battery manufacturing, at least in its first phase. Tesla has indicated that it is scaling back investment in in-house battery production as a response to soaring input prices.

Musk said last year that the company will need a dozen factories to reach its target of building 20 million electric vehicles a year by 2030.

Tesla stock has more than doubled from its January lows as investors have overcome worries triggered by a succession of price cuts at the end of last year. At its current level, it’s still down by more than half from its 2021 peak but up fourfold from its level immediately before the pandemic.