Tesla Inc. will build a new plant in Monterrey, Mexico, the nation’s president announced, ending weeks of speculation over where the maker of electric cars would choose to operate in the country.
President Andres Manuel Lopez Obrador said Tuesday that the company will build the plant with a series of commitments to address the problem of water scarcity. AMLO, as the president is known, had a call with Tesla’s CEO Elon Musk on Monday.
The plant investment is expected to be about $1 billion, Reuters reported. There was no immediate verification of the plans from Musk or Tesla.
“He was very responsive, understanding our concerns and accepting our proposals,” AMLO said. “I want to thank Mr. Elon Musk for being very respectful, attentive and understanding of the importance of addressing the problem of water scarcity.”
Tesla shares fell 1.1 percent to $205.15 in midday trading.
The company’s commitments include using recycled water in the entire manufacturing process of electric cars, even for car paint, the Mexican leader said, adding that more details will be announced Wednesday, when the automaker has an investor day. Additional commitments will also be announced next week, he said.
The leader of the Latin American nation had previously raised concerns about the lack of water for Tesla to build in northern Mexico. On Friday, he reinforced the message by saying the company wouldn’t receive permits if there wasn’t enough water in that region.
Last June, authorities were forced to cut water access in Nuevo Leon, where Monterrey is located, to a maximum of seven hours, as dams were at risk of emptying entirely. The Mexican government even asked industries and farmers in Monterrey to offer part of their water to the population amid weeks of acute shortage while AMLO asked businesses in the area to cut water usage.
Tesla ran up against concerns about water scarcity while planning one of the two new car factories the company opened last year. While Musk laughed off a question about the issue in August 2021, it contributed to delays that kept the plant from starting production until seven months later.
The factory would be Tesla’s first south of the U.S. border and part of Musk’s plans to expand global manufacturing, adding to the new plants in Austin, Texas, and Berlin.
AMLO said that Mexico would be unable to provide subsidies for batteries or semiconductors comparable to the incentives being offered in the U.S. The uncertainty over the location in Mexico touched off a marketing battle between different states, whose leaders sought to promote their appeal for businesses.
The electric car industry has grown in Mexico mainly as foreign demand for the vehicles continues, with BMW announcing a new investment of 800 million euros ($851 mllion) in the state of San Luis Potosi. Other automakers, such as General Motors, have also announced that they will are expanding their electric auto production in the country.