Tesla: Opportunities for Automotive Suppliers Manufacturing in Mexico

By Alma R. Ortega López | Institutional Relations at American Industries Group®
Published 04/27/2023

In March 2023, Tesla announced that it will establish its next automotive assembly plant near Monterrey, Mexico, as a key component in achieving its ambitious goal of 20 million cars a year. The company joins a host of other global automakers, including Toyota, Honda, Nissan, Volkswagen, Audi, Mazda, Mercedes, Kia, and BMW, that already have assembly plants in Mexico. Like other automakers, Tesla seeks to take advantage of Mexico’s ample, highly trained, and affordable labor force, plant productivity, well-developed supply chain ecosystem, and logistics benefits, among others. This move stands to be a major opportunity not only for Mexico but also for automotive suppliers in the supply chain doing business in Mexico.

This article will discuss the company’s move to Mexico and explore how this can benefit automotive suppliers, including several opportunities in Mexico for automotive suppliers that can contribute to helping them maximize cost savings and improve their competitive position, as well as a short history of Nikola Tesla—the company’s namesake.

Nikola Tesla and the Tesla Motors Company

When we hear the name Tesla, the first thing that often comes to mind is the revolutionary electric car company and its industry-leading CEO, Elon Musk. What few could fail to realize, however, is that the company is actually named after a revolutionary scientist, Nikola Tesla.
Born in Serbia in 1856, Nikola Tesla was a visionary scientist at the forefront of a host of inventions and breakthroughs that are still used today. He is the undisputed winner of the famous war of the currents (DC vs. AC), in which he competed against his contemporary, Thomas Edison. Amongst Tesla’s most notable innovations are the Niagara Falls Hydroelectric Power Plant, the Remote Control, X-rays, Radio, and the AC motor.
It is owing to his impressive accomplishments that the electric car firm, Tesla Motors, decided to name itself after this genius scientist. Founded in 2003 by Martin Eberhard and Marc Tarpenning, Tesla Motors stands out today as one of the industry’s most advanced and successful automakers. The company is renowned for its cutting-edge technology, which has helped shape the future of mobility around the world.
What is most impressive about Nikola Tesla and his legacy is that he always sought to bring his inventions and creations to the greater good of humanity. His scientific accomplishments continue to serve humankind today, and we can see how his legacy has been immortalized through companies like Tesla Motors.
To this day, we still recognize Nikola Tesla as the brilliant visionary man he was and how his work helped shape the world we know today. The Tesla Motors Company will remain a true testament to the genius and drive of this remarkable inventor and a constant reminder of the power of science to further human progress.

Tesla’s move to Mexico

Recently, the Tesla company announced its move to Mexico. This comes at an opportune time for the country, with the automotive industry booming due to the large presence of foreign auto suppliers in the country. Tesla’s decision to set up in Mexico has been seen as a major validation that the country is an attractive option for automotive supply chain investments.

Mexico has long held an advantage regarding overseas automotive production due to its low labor costs, advantageous trade agreements, and preferential terms under the United States-Mexico-Canada Agreement (USMCA), including new rules of origin for automakers. This is further accentuated by Mexico’s well established automotive infrastructure. All of these factors give Mexico a competitive edge over other nations in terms of the cost of auto production.

In the wake of Tesla’s relocation, many automotive suppliers are now considering Mexico as a potential option for their own automotive production investments. This will bring increased sales, growth, and business opportunities to the Mexican automotive sector as a whole, and further expansion of the already thriving automotive industry.

Opportunities in Mexico for automotive suppliers

Suppliers looking to capitalize on Tesla’s move have a number of opportunities to not only lower costs, but also improve quality, productivity, and innovation. Some of the main advantages of manufacturing in Mexico include:

It’s ample, trained, productive, and affordable labor force. Mexico has long been a major hub for automotive production due to its labor force. Automotive suppliers looking to minimize their production costs and maximize productivity can take advantage of the country’s large pool of trained employees and lower wages than in many other countries.

Tariffs and duties savings. The United States-Mexico-Canada Agreement (USMCA), which went into effect in July of 2020, includes a variety of provisions for automakers. It creates stricter content rules and establishes that vehicles assembled in the region be composed of 75% of regional content (an increase from 62.5 in NAFTA). In addition, 70% of corporate purchases of steel and aluminum used by vehicle manufacturers are required to come from North America. These changes are estimated to provide $8 billion in savings annually in lower tariffs on parts and vehicles exported to Mexico and Canada, which is a significant reduction from the $23 billion in annual tariffs that were in place under NAFTA.

Ease of logistics. Mexico’s geographic location means 80% less shipping times and costs compared to China. The country’s well-developed, safe, and accessible network of air, land, and rail infrastructure means that companies have various options for transporting goods depending on what best meets their needs. The flexibility of having multiple options and the transparency of communicating with transport carriers and tracking shipments in real time further reduce logistics risks and costs.

Strong Automotive Infrastructure. One of the biggest draws for suppliers is Mexico’s strong automotive infrastructure. This infrastructure means that all necessary components for automotive production can be easily, quickly obtained and at a low cost.

Incentive Programs. The Mexican government has been very supportive of the automotive sector and has introduced several measures to attract overseas investment and encourage growth in the industry. In addition, there are a variety of programs and certifications available to companies manufacturing in Mexico that allow for major savings on import and export dues, taxes, and tariffs, including the Manufacturing, Maquiladora and Export Service Program (IMMEX), Sectorial Promotion Programs (PROSEC), and Authorized Economic Operator (OEA), among others.

How suppliers can take advantage of Tesla’s relocation

With Tesla’s relocation to Mexico, automotive suppliers have an excellent opportunity to capitalize on the move and should consider establishing operations in Mexico. The easiest and fastest way to do this is by working with a provider of shelter services. Their experts in administrative shelter and real estate services can help you throughout the entire process—from site selection to hiring—so that you can gain access to a bigger market, cheaper production costs, and an increased customer base, among other benefits.

Tesla’s relocation to Mexico provides a unique opportunity for automotive suppliers

By setting up a presence in Mexico and taking advantage of its labor benefits, preferential trade terms, mature supply chain ecosystem, and government incentives, automotive suppliers can maximize the benefits associated with Tesla’s relocation.

Working with a provider of shelter services will help ensure you can develop and execute a strategy that will save time and money and leverage manufacturing in Mexico to gain a competitive edge over other suppliers to put you in a position to reap the rewards of Tesla’s relocation.

Alma R. Ortega López

Institutional Relations

American Industries Group®

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