MEXICO CITY (Reuters) — Electric vehicle maker Tesla will build a new plant in the northern Mexican city of Monterrey, President Andres Manuel Lopez Obrador said on Tuesday, dispelling concerns his government could block the deal over water shortages.
The news gives a boost to Mexico, which is working to establish itself as a hub for the so-called nearshoring of investment – capitalizing on 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 agreement after a call with Tesla Chief Executive Elon Musk on Monday, following a separate conversation he said the two held late last week.
“This will represent a considerable investment and many, many jobs,” Lopez Obrador told reporters, saying Musk had been receptive to Mexico’s concerns and accepted its proposals.
Speaking at a news conference, Lopez Obrador said Tesla would likely give more details of its plans on Wednesday.
Musk is due to hold an “Investor Day” on Wednesday, during which he will outline his “Master Plan Part Three.”
Tesla did not immediately reply to a request for comment.
The call between the two took place after Lopez Obrador had on Friday stirred fears that he could block the investment in Monterrey if water was scarce in the arid region.
The president said Musk had understood the challenge posed by water scarcity, and that the company would be making a series of commitments as part of the deal.
The discussions around Tesla have been a major test of how investors responded to Lopez Obrador’s resource nationalism, which has persistently stirred misgivings among business groups.
Speculation about the prospect of Tesla going to Mexico has circulated for months, and the plant is set to become one of the major investments of the Lopez Obrador administration.
Mexico received its highest foreign direct investment inflows for years in 2022, official data showed, as businesses took advantage of a lower-cost and skilled work force that has made the country a global center of the car industry.
However, overall investment has been held back by companies unsettled by Lopez Obrador’s efforts to strengthen state control of the energy market at the expense of private capital.