Tesla Inc will build a new assembly plant in northern Mexico, the country’s president announced on Tuesday, marking a push by the electric vehicle maker to broaden operations outside the U.S. in a deal an official said was worth over $5 billion.
President Andres Manuel Lopez Obrador said “the whole Tesla company” was coming to Mexico to build a “very big” automotive plant, noting that potential investment in batteries was still pending. He did not reveal what models it would produce.
One Mexican official said the plant would be a Tesla “gigafactory” that could produce the Semi truck, Roadster sports car, and potentially other vehicles. Another official said the plant could produce a kind of sport utility vehicle (SUV).
The Model Y is Tesla’s best-selling SUV. Tesla will likely give details of its plans on Wednesday, Mexico’s government said.
Lopez Obrador’s announcement of the plant in the Monterrey metropolitan area dispelled recent concerns that he could upend the investment by imposing conditions on the company due to problems over a lack of water in the arid border region.
“This will represent a considerable investment and many, many jobs,” Lopez Obrador told reporters, saying Chief Executive Elon Musk had been receptive to Mexico’s concerns and made commitments on how to address the shortage of water.
That would in part involve Tesla recycling water used in the assembly process, the president said.
Martha Delgado, a Mexican deputy foreign minister, told Milenio Television the investment was worth “in excess of $5 billion,” and that Tesla would produce about one million vehicles a year there for domestic and international markets.
Tesla has a combined annual production capacity of more than 1.9 million cars at other factories.
Separately, a Mexican source with knowledge of the matter said the initial investment will be worth around $1 billion and further phases could bring total spending to $10 billion.
Tesla did not respond to a request for comment.
The company has car factories in the U.S. states of California and Texas as well as in Berlin and Shanghai.
Musk has said for months that the EV maker will announce a new factory, and he is set to discuss expansion plans, next-generation vehicle platforms and other topics at an “Investor Day” event on Wednesday. The company is also expected to give details of a new, cheaper model of vehicle at the event.
The news is a boost for 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 Mexico and Tesla had reached agreement after a call with Musk on Monday, following a separate conversation he said the two held late last week.