This location, if confirmed, would mean reinforcing an already established relationship where several suppliers of the Texas factory would be sending material from Mexico to the United States, to feed this facility. Even the State of Texas has created an exclusive lane at the entrance to the Colombia-Solidaridad International Bridge, which allows trucks carrying goods for Tesla to gain faster access.
According to rumors, Tesla will be confirming its plans this coming January, in an official announcement indicating the green light for the project to build a factory in Nuevo León, a state in the northeast region of Mexico.
With a total land area of 64,555 square kilometers (40,112 square miles), Nuevo León is the 13th largest federal entity in Mexico. The state is bordered by Tamaulipas to the east, Coahuila to the west, and both Zacatecas and San Luis Potosi to the south. To the north, it shares an international border with Texas. The Laredo-Colombia Solidarity International Bridge is the only vehicular bridge that connects the US with the state of Nuevo León; it crosses over the Rio Grande (Rio Bravo) between the city of Colombia, Nuevo León, and Laredo, Texas.
Nuevo Leon is the seventh largest state in terms of population with an estimated population of 5.78 million people in 2020, and the state's most populous city is Monterrey with 1.42 million people; the Monterrey metropolitan area is the second largest metropolitan area in Mexico with an estimated population of 5.3 million people in 2020. Monterrey is known for being an important industrial, intellectual and financial city in Mexico.
Everything leads us to think that this plant in Nuevo Leon will be dedicated to shaping the most economical Tesla. A “Model C” - provisional and unofficial name - which will need its own space, which at the moment does not have either in Fremont, California or Austin, Texas, where the rest of the projects (Tesla Model Y Cybertruck, Tesla Semi) occupy all of its current and future capacity.
In addition, its location in Mexico will allow it to achieve several other benefits: on the one hand, to purchase a piece of land at a comparatively low cost; on the other hand, to be able to access qualified labor at a cost that is also much lower than that on the other - northern - side of the border. This is a key aspect when it comes to manufacturing a car with a lower cost, with a margin that will also be predictably shorter.
The challenge is to achieve the goal set by Elon Musk himself, who in a recent conference indicated that they aspire to reduce production costs by 50% again. A situation where they will have to use the experience gained during all this time developing the Model S, X, 3 and the Model Y, but that will need extra advantages that a market like Mexico by all means can give.
Now, there is something very important to add to the equation: the “USMCA” treaty, a free trade agreement between Canada, Mexico, and the United States. It replaced the North American Free Trade Agreement (NAFTA) implemented back in 1994, and is sometimes characterized as "NAFTA 2.0", or "New NAFTA", since it largely maintains or updates the provisions of its predecessor. USMCA created one of the world's largest free trade zones, spanning roughly 500 million people and totaling over $26 trillion in GDP (PPP).
So there is clearly another advantage for the Gigafactory in Nuevo Leon: thanks to this free trade agreement with the USA, it will allow Tesla to enjoy the tax advantages set in motion by the Inflation Reduction Act, which basically charges cars manufactured outside the United States, or cars that use batteries from China, with tariffs; something that does not affect models made in Mexico.
In conclusion, the factory to be built in Nuevo León, Mexico will efficaciously contribute to Tesla’s strategy of creating a more economical model, as it will be able to take advantage of the USMCA trade agreement to significantly reduce production costs, as well as benefit from the more affordable labor force and low-cost land of the area. All of these “perks” will surely allow Tesla to make the most economical Tesla Model yet.
All images courtesy of Tesla Inc.
Nico Caballero is the VP of Finance of Cogency Power, specializing in solar energy. He also holds a Diploma in Electric Cars from Delft University of Technology in the Netherlands, and enjoys doing research about Tesla and EV batteries. He can be reached at @NicoTorqueNews on Twitter. Nico covers Tesla and electric vehicle latest happenings at Torque News.