Mexico’s states are in fierce competition for a potential Tesla factory

MEXICO CITY — In Mexico, there is a feverish competition between states to win a potential Tesla facility in a push reminiscent of what is happening between US cities and states competing to win investment from tech companies.

Mexican governors have gone to extreme extremes, such as putting up billboards, creating special car lanes or mock-ups of Tesla ads for their states.

And there’s no guarantee that Tesla will build a full-fledged factory. Nothing has been announced, and the frenzy is mainly based on Mexican officials saying Tesla boss Elon Musk will soon be on the phone with Mexican President Andrés Manuel López Obrador.

The northern industrial state of Nuevo Leon appeared to have an early lead in the race.

Last summer, he painted the Tesla logo on one lane of Texas’ little-used Columbia border crossing, and in December erected billboards reading “Welcome Tesla” in the state capital, Monterrey.

The influencer wife of the state governor, Mariana Rodriguez, was even shown in leaked photos at a meeting with Musk.

But López Obrador appeared to rule the semi-desert state out of consideration on Monday, arguing that he would not allow factories’ typically high water use to create shortages there.

This set off a competitive scramble between other Mexican states like feeding time at a piranha tank. The proposals of the governors ranged from sly proposals to the almost comical.

“Veracruz is the only state with too much gas,” joked Cuitláhuac Garcia, governor of the Gulf state of Veracruz, before quickly adding, “gas… for industrial use, for industrial use!”

A latecomer to the race, Garcia had to try harder, noting that Mexico’s only nuclear power plant is located in Veracruz. He claimed that 30% of Mexico’s water is owned by Veracruz, although the National Water Commission puts the state’s share at around 11%. It turns out that water is thicker than blood.

The governor of the western state of Michoacan could not miss out either. Governor Alfredo Ramírez Bedolla quickly posted a spoof ad of a Tesla car standing next to a giant, car-sized avocado — Michoacan’s best-known product — with the slogan, “Michoacan – The best choice for Tesla.”

“We have enough water,” Ramírez Bedolla said in a televised interview between meetings with auto industry figures and representatives of international business.

Michoacan also has an intractable problem with drug cartel violence. But similar violence in the neighboring state of Guanajuato has not stopped seven major international automakers from setting up plants in Guanajuato.

The governor of Nuevo Leon, Samuel Garcia, had to think fast to avoid total exclusion and devised a new strategy.

Garcia reached the western state of Jalisco, whose governor, Enrique Alfaro, belongs to the same small Civic Movement party. On Thursday, they jointly concluded an “alliance” that allows trucks from Jalisco to use the Nuevo Leon border crossing at a discount, the same one where the “Tesla” lane appeared last year.

Jalisco has a healthy foreign tech sector anyway, but most importantly, it has more water than Nuevo Leon.

They both seemed to want to play nice. “We are two states that should not compete and cannibalize each other … cannibalizing for investment is a mistake,” Alfaro said.

López Obrador’s focus on water is more about politics than the drought, said Gabriela Siller, chief economist at Nuevo Leon-based Banco Base. He said the president appeared to be trying to steer Tesla investments to states controlled by his own Morena party, such as Michoacan or Veracruz.

It can be a dangerous game, Siller said.

“Tesla can say it’s not somebody’s toy to take anywhere and decide not to come to Mexico,” he said.

According to Sam Abuelsamid, senior research analyst at US-based Guidehouse Insights, playing off one state against another is common practice in the US.

“You remember a few years ago, Amazon was talking about building its headquarters, like every state, city in the country was bidding and trying to lure Amazon there,” Abuelsamid said.

There are doubts that whatever Musk announces will be a car assembly plant. Foreign Minister Marcelo Ebrard said he understood it would not be a plant but an “ecosystem” of suppliers.

Musk has a history of making promises that don’t come true or happen years after he said they would. In 2019, for example, it promised a fleet of fully autonomous robotaxis on the road sometime in 2020. Nearly three years later, Tesla has yet to sell an autonomous vehicle.

While there has been little talk of subsidies in Mexico so far, many auto companies have received significant incentives to build plants in Mexico. Such competition can be costly.

“It is questionable whether this is so economically beneficial for the settlements or the provision of subsidies,” said Abuelsamid. “Sometimes billions of dollars are spent on tax breaks to lure a company.”

Musk has occasionally floated the idea of ​​building a $25,000 electric vehicle that would cost about $20,000 less than the current Model 3, Tesla’s cheapest car. Many automakers produce cheaper models in Mexico to save on labor costs and protect profit margins.

The Tesla investment could be part of the “close support” of American companies that were once manufactured in China, but are now struggling with logistical and political problems there. That these companies are now turning to Mexico is the Latin American country’s biggest hope for foreign investment.

“The battle between states to attract investment from this nearshoring phenomenon is going to be tough and complicated,” Alfaro said.

As Ramírez Bedolla put it: “wherever Tesla sets it up, it will be big news in Mexico.”