Tesla’s plans in Mexico: from euphoria to uncertainty

Mexico has gone from euphoria to uncertainty after learning that Tesla’s plans to build a new electric car manufacturing plant in the northern state of Nuevo Leon have been put on hold, leaving up in the air a bet of more than 6 billion dollars that the government hoped could generate thousands of jobs and attract more foreign investment.

“It’s not serious,” Mexican President Andrés Manuel López Obrador said Wednesday in response to the news that broke the day before. “They must have another business plan or they already did the deal because these companies often don’t produce, they speculate, they release news and they do very well on the stock exchanges, their share prices go up and production becomes secondary,” the president criticized.

Tesla CEO Elon Musk said Tuesday that the company wanted to wait “to see how things turn out after the U.S. election in November” before moving ahead with construction of the factory, planned for a suburb of Monterrey, the country’s industrial capital.

According to Musk, the reason is that Republican candidate Donald Trump “has said he will put heavy tariffs on vehicles produced in Mexico, so it doesn’t make sense to invest heavily in Mexico if that’s going to be the case.”

Some analysts believe the underlying reason may be the company’s poor results, which saw its profits fall 45% in the second quarter as sales of electric cars plummeted.

Shortly after the announcement of the plant in Nuevo León, in early 2023, and after the governor of this state, Samuel García, celebrated it with great fanfare, spreading multiple videos on social networks about the wonders of electric cars, delays began because Tesla asked Mexico to guarantee the energy and road infrastructure that had to be built.

El Universal columnist Mario Maldonado went even further in his article on Wednesday. “Not a single stone was laid, they stopped requesting workers for their eventual plant and in his most recent book Elon Musk warned that he would not send his engineers to Mexico,” said Maldonado.

Comments by the future president of Mexico, Claudia Sheinbaum, suggested something similar when she recalled that “since the announcement was made until now, there has not been much progress” and that it would be necessary to see if the real reason was the elections and what Trump said or “other reasons particular to Tesla.”

For its part, the Nuevo Leon government said in a statement on Wednesday that “Tesla has a significant investment” in the state and that “no formal notice has been received from the company” about changes in plans, although if it decides to adjust its schedule, the state government “understands and respects it.”

Some analysts are concerned about Musk’s comments. Alfredo Coutiño, director for Latin America at the Moody’s consultancy, told AP that they are a sign of caution in the face of the US elections and represent a “negative signal for Mexico” because, if the automotive plant does not ultimately come to fruition, it would imply that the country is seen “as a market at risk in the event of a Trump victory.”

“This decision could be a warning sign for other large investors and could trigger new announcements of investment delays in Mexico,” Coutiño added.

López Obrador has insisted that during his administration “every facility for investment” has been provided and foreign investment records have been broken: in 2023 it was more than 36 billion dollars, 27% higher than the close of the previous year.

However, the shadow of the effects of a possible Trump victory is increasingly present.

According to a Moody’s study evaluating possible scenarios — and to be released on Thursday — if the Republican is reelected as president, Mexico could suffer a significant economic slowdown and inflation would rise due to the depreciation of the peso in the face of a potential trade war between the two partners. If the Republicans also took control of Congress, the scenario would be worse and the consultancy does not rule out Mexico entering a recession.

Both the current Mexican president and his successor insisted that any trade barriers imposed by Trump would also harm American citizens and wanted to appear positive.

“The trade relationship between Mexico, the United States and Canada will continue, because it benefits North America,” Sheinbaum said on Wednesday. She also recalled that “the United States also benefits” from that relationship.

“There is a lot of passion, a lot of rhetoric, too much talk in the campaigns,” said López Obrador, who on Wednesday released the announced letter to Trump explaining the problems with his proposals. “Once the elections are over and the governments are formed, it is a different story.”

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