Mexico City — Elon Musk has chosen the northern Mexican state of Nuevo León to build Tesla’s (TSLA) first gigafactory in Latin America, and which will be the company’s largest, amidst the trend of nearshoring and the nascent transition to electromobility in the country.
Tesla’s new electric vehicle plant will be located in the Santa Catarina municipality of Monterrey, capital of Nuevo León, which is around 640km from the company’s gigafactory in Texas, and which is the global headquarters of the company owned by the world’s richest person.
Musk will be able to get from Santa Catarina to Texas in seven hours by driving his electric car, crossing the border through Nuevo Laredo, or across the Colombia Bridge, where there is an exclusive lane for Tesla suppliers.
The distance and land connection are just two of the factors that influenced Musk’s decision to choose Nuevo León for the new plant, and Tesla’s investment in Mexico had been mulled over for a year by President Andrés Manuel López Obrador and the Nuevo León state government, headed by governor Samuel García.
Watch a video of Presidente Andrés Manuel López Obrador’s announcement of the Tesla investment (in Spanish):
How did Santa Catarina win the investment?
The mayor of Santa Catarina, a municipality known as ‘the gateway’ to Nuevo León. Jesus Nava stated on his Instagram account that Tesla’s million-dollar investment could represent five times the private investment that has come to the area in the last 10 years.
In the days prior to the confirmation of the company’s arrival in Mexico, several states in the country raised their hands to host the new gigafactory, however, Nuevo León had probably already won the bid for the investment even before AMLO, as the president is known, confirmed in his Tuesday morning conference Tesla’s landing in the country.
Nuevo León had been preparing for the arrival of investment and had already configured a map to offer competitive conditions to new companies landing in the state to invest.
Bloomberg Línea identified at least 15 factors that would have influenced Tesla’s decision to locate in Nuevo León and the municipality of Santa Catarina.
1. Location
Nuevo León has a privileged location as it is situated on the so-called backbone of the North American market. Mexico’s geographic location has always been considered one of the country’s main advantages in the world, since it has easy access to the US market.
2. Mexico’s experience in the automotive industry
Mexico has a strong automotive industry and is a manufacturing powerhouse as the seventh-largest vehicle manufacturer in the world and the largest in Latin America. It is the fourth-largest largest exporter of auto parts in the world and the leading supplier to the US market.
3. Connectivity and infrastructure
Nuevo León has land, air and sea connectivity, with a highway network that connects the state with neighboring states where assembly plants such those of General Motors and BMW are located, as well as with the state of Texas. Nuevo León has two customs offices, one in Nuevo Laredo and the other in Puente Colombia, and the latter is currently undergoing expansion works and already operates an exclusive lane for Tesla suppliers.
The state is also served by flights from Dallas, Austin, Houston and San Antonio, in Texas, as well as Los Angeles, Las Vegas and New York, among other cities, and has overland access to the Pacific coast ports of Lázaro Cárdenas and Manzanillo and the Gulf coast ports of Tampico and Veracruz.
4. Foreign direct investment
Nuevo León was the second state out of the 32 in Mexico that received the most foreign direct investment in 2022, behind Mexico City. The northern state saw $4.39 billion in investment, an increase of 9.2% over 2021 levels, and a a record level, according to the state government of Nuevo León.
5. Santa Catarina, an industrial corridor
Santa Catarina has an important industrial corridor that houses companies from different sectors, and which are part of the so-called USMCA corridor as suppliers to the US and Canada as part of the trilateral free trade agreement.
Santa Catarina also has an electricity substation and the Santa Catarina Wind Farm, one of the largest renewable energy projects in the country, and whose installed generation capacity is expected to represent 59% of the total energy in the country by 2028.
6. A manufacturing hub
Santa Catarina’s vocation is manufacturing, with companies producing products for the transportation and power generation sectors, as well as metals, household appliances, electronic equipment, food and beverages, machinery and equipment.
7. Tesla suppliers
There are around 120 Tesla suppliers in Mexico, which arrived in Nuevo León in 2021, and some of which are located in Santa Catarina or in neighboring municipalities, such as Noah Itech, a technology development center; Vertiv, which generates data storage technology, and Quanta Computer, which produces chips.
8. General Motors, a neighbor
Santa Catarina is located 70km, a 60-minute drive,from the General Motors plant in Ramos Arizpe, in Coahuila state, and which is expected to begin producing electric cars by 2024, making the factory key to General Motors’ objectives.
9. Industrial parks and clusters
Nuevo León has 140 industrial parks and is the state with the most industrial parks in Mexico, as well as 13 industrial clusters in sectors such as automotive, aerospace, medical services, energy, food and agriculture, among others, according to the state government.
10. Nearshoring
Transportation costs from Asia to the United States increased 5.5-fold between 2019 and 2022, so foreign companies are now looking to relocate factories and production centers in Mexico, which can offer lower costs and delivery times given the proximity to the US.
During 2022, 99% of the relocation of production centers in Mexico was captured by 13 Mexican states, however, Nuevo León alone became home to 50% of the relocated companies, according to index and GBM information.
11. Electromobility and the government’s plan
On February 1, 2023, the Ministry of Foreign Affairs launched a Working Group for the electrification of transportation that seeks to generate solutions to guarantee a coordinated transition to electromobility. This group will be the roadmap for the transition of automotive companies in Mexico and for the development of public policy.
12. Samuel Garcia and business travel
State governor Samuel García has been in office since October 4, 2021 and has visited the US on a number of occasions to attract investment to the state, and which are now paying off, according to the mayor of Santa Catarina, Jesús Nava.
García was the only Mexican governor to attend the World Economic Forum in Davos in January, where he met with executives of global companies.
13. Advantages of the USMCA
Mexico’s automotive industry has reaffirmedx its global leadership position with the entry into effect of the USMCA. The trade agreement allows preferential access to the US market and which attracts investment and enables tariff-free trade. Companies arriving through nearshoring will enjoy these competitive advantages.
14. Human capital
The government of Nuevo León claims that the state is the educational center of Mexico, arguing that it has the largest engineering school in the north of the country and that more than 21,000 technicians and more than 8,000 engineers graduate every year, with a good level of English, thus supplying specialized human capital.
15. Sustainable agenda
On February 27, the Nuevo León government announced the creation of the Agency for the Promotion and Use of Renewable Energies, which is part of the government’s strategy to increase investments and grow the industry, but not at the expense of the environment.