Tesla receives $152mn incentive package for Mexico gigafactory

Tesla will bring affordable new model to the facility once operational post-2026

Nuevo Leon will become Tesla's sixth gigafactory
Nuevo Leon will become Tesla's sixth gigafactory

Elon Musk-led EV pure play Tesla has received the final green light ahead of beginning construction of its latest gigafactory in the Mexican state of Nuevo Leon. The state's government has confirmed a $152mn incentive package for the automaker.

The approved incentives will allow the creation of basic infrastructure, such as drinking and treated water, roads and new transportation routes, the government of Nuevo Leon has announced. The factory will be built in the municipality of Santa Catarina to the west of the metropolitan area of the state capital Monterrey.

After being initially announced in March, the proposed factory has faced delays, most recently with CEO Musk saying at Tesla's Q3 earnings call that "we want to just get a sense for what the global economy is like before we go full tilt on the Mexico factory". "I am worried about the high interest rate environment that we are in," Musk said.

But the incentives offered by the state will sweeten the deal for Tesla. The state initially committed in October to upgrade electricity, water, and transportation in the region after Musk reportedly requested improvements, and there are now also tax breaks on the table.

"The incentives authorised by the council for basic infrastructure and to support the creation of new jobs through a reduction in the payroll tax reach 2.627bn pesos ($152mn), equivalent to just 3.37pc of the investment that Tesla alone will make," the state government says.

The approval of the incentives for infrastructure to accommodate Tesla's move-in comes after state governor Samuel Alejandro García Sepulveda visited the Shanghai, site of another Tesla gigafactory, "to learn first-hand about good practices and implement them to accelerate the installation process of the gigafactory in Nuevo Leon and for this to be the company's flagship assembly plant in the world".

Total investment in the gigafactory project amounts to $4.5bn in its initial phase, and the state government says that 60pc of suppliers to the facility will be local. Over 30 further suppliers are set to arrive in the state in a plan to nearshore portions of the supply chain.

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The upcoming factory is set to enter operation no earlier than 2026. It had initially been speculated that it would a first home for the manufacture of Tesla's upcoming mass-market B- or C-segment EV. Musk, however, recently denied this, saying that "it will take to long to complete the factory in Mexico" for the new model to be manufactured there at its birth. He did confirm, though, that the Nuevo Leon plant would be the second manufacturing location of the new mass volume vehicle.

The state government says that Tesla is attracted towards Nuevo Leon "due to the economic cluster that the business sector has forged, in addition to universities and qualified labour".

But Mexico also enjoys favourable free trade terms with the US, allowing any components or minerals sourced or processed in the country to qualify for US subsidies. Detroit legacy player Ford currently manufactures its best-selling EV, the Mustang Mach-E, in Cuautitlan near Mexico City.

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