According to the Chinese publication LatePost, it claims sources say Tesla’s Nuevo Leon factory in Mexico, touted to be the world’s largest car manufacturing facility, will now be completed and ready for production in Q1 2025.
This update was apparently shared with component suppliers and reveals a delay of 1-2 quarters beyond original expectations. Inside sources claim that Tesla had previously underestimated the complexities of setting up a factory in Mexico.
As a consequence, suppliers have been informed that failure to complete localized production in Mexico by 2025 will not only jeopardize their chances of receiving orders from the new factory, but could also lose their existing exports to Tesla’s American factories.
These suppliers are also being motivated to set up shop in Mexico. One supplier claimed that Tesla’s purchase price in Mexico is 18%-20% higher than in China, which can increase the gross profit margin by roughly 3%, despite production costs being 15% higher in Mexico.
Once functional, the Nuevo Leon factory is expected to produce 2 million vehicles annually. This figure is nearly triple the capacity of Tesla’s Shanghai factory which produced 710,000 vehicles last year, accounting for 54% of Tesla’s global production.
A key reason behind choosing Mexico for the new factory relates to then Inflation Reduction Act enacted in the United States last year. The act offers a tax deduction of US$7,500 per vehicle for electric vehicles that adhere to the “North American Rules of Origin”. This implies over 75% of a new energy vehicle’s components must be manufactured in North America.
Despite the potential risks associated with higher labor costs, inferior infrastructure, and cultural differences, Tesla’s Chinese suppliers are eager to establish factories in Mexico.
Not only are they attracted by the larger profits, but Mexico’s status as the world’s fourth-largest producer of auto parts and the sixth-largest producer of automobiles also holds appeal.
The Mexico venture may be risky, but the suppliers believe in Tesla’s growth prospects, with many viewing it as an opportunity not to be missed. With Tesla’s new factory, more Chinese companies in the auto industry chain are planning to take their business overseas.
Again, this one with a grain of salt. Tesla has shown that it can build its Gigafactories quickly–just look at Giga Shanghai and Giga Texas. With Giga Mexico, we’d expect the same expertise applied to its latest factory that will be smaller than others but also product its next-gen vehicle.
