The Tesla case and the political dispute in Mexico show the instability to achieve “nearshoring”

Report You’re here of a head office to build its first factory in Mexico reveals the unstable elements of the “relocationin our country, as analysts believe the US market views clean energy supply and political interference with concern.

The President of Mexico, Andres Manuel Lopez Obradorassured that New Leoa few steps from the border with the United States, and Hidalgoat the center of the country are the two states leading the race for Tesla’s coveted investment.

For his part, Foreign Minister Marcelo Ebrard announced on Friday that the tycoon’s company Elon Musk chose Mexico to increase its presence, but the official announcement will be given later.

Suggested by recent reports as the most likely destination, Nuevo León has quick access to UNITED STATESa skilled workforce and a comfortable life for executives.

On the other hand, Hidalgobeside the Mexico Cityis hundreds of miles from the border, but land and labor costs are lower, since the state government has donated hundreds of acres to facilitate the installation of the factory.

Either way, Tesla will depend on the government to take advantage of Mexico’s unstable power supply and will have difficulty obtaining substantial power from renewable sources, as required by international standards.

This places the company based at Austin, TX -and any other major investors seeking to build factories in Mexico- at the mercy of the political forces dictated, primarily, by President López Obrador.

President López Obrador has made it clear that the priority in energy supply is the Federal Electricity Commission (CFE), despite criticism that its production, mainly based on fossil fuels, pollutes and displaces private companies.

The United States and Canada have officially entered into a trade dispute over Mexico’s energy policy.

Many analysts also assure that the federal government has tried to tip the balance in favor of Hidalgo, a state governed by Julio Menchaca, an ally of López Obrador, in addition to being located near Felipe Ángeles International Airport ( AIFA), one of the president’s most emblematic projects.

“It is very important to consider political factors at this time and this is a perfect example,” said Claudio Rodríguez, energy lawyer at Holland & Knight. “The Nuevo León-Hidalgo issue is 100% political,” he added.

It’s unclear exactly what Tesla’s investment in Mexico will look like and what the company plans to produce in the country.

“Developing other regions that can become industrial hubs is also something that can benefit Mexico in the long run,” said Alejandra Soto of consultancy Control Risks. “But forcing someone (to settle in a certain place) is not positive.”

Musk’s interest in investing billions of dollars in Mexico comes as the country begins to claim center stage as a neighborhood hotspot.

With its low costs and proximity to the US market, Mexico has emerged as an attractive alternative that is gradually attracting manufacturing in sectors such as automotive, electronics, textiles and furniture.

Many contracts have landed in Monterrey, the capital of Nuevo Leon, including Tesla suppliers: Taiwanese electronics company Quanta Computer’s first plant outside Asia and an expansion of Italian brake maker Brembo.

In another recent agreement, the German BMW assured that it would invest 866 million dollars in the state of San Luis Potosí to produce batteries and electric cars.

Foreign direct investment in Mexico rose 12% last year to $35.3 billion, according to preliminary data, another sign that offshoring is gaining momentum, analysts said.

Change is also happening on the other side of the border. Imports of Mexican products from the United States increased by 7% in 2021 compared to 2019, the fastest pace in a decade.

However, López Obrador is holding back Mexico’s ability for an offshoring boom, especially with its energy policies, analysts say. The government holds the keys to Mexico’s electricity supply, with the ability to speed up or delay requests to connect to the grid.

The president canceled a reform of his predecessor which he considered too generous in opening up the energy market to private capital. It suspended self-supply power generation permits, which allowed companies to organize their own power supply, and also hampered attempts by private companies to connect their power generation to the national grid.

“It is striking that energy supply decisions are determined by political criteria when it should be an open market and availability for industries to make their business plans based on what they best suited,” said Juan Francisco Torres, Hogan’s attorney. Lovells.

“Imagine what it would be like if you had a profitable, energy-efficient investment policy with large facilities,” he added. “We would fly at 30,000 feet and have endless investment, but that’s not happening.”