The construction of Tesla’s Gigafactory 6 in Nuevo León does not have a start date yet. At the end of 2023, Elon Musk stated that the plant in Mexico will be the second line of a new low-cost electric vehicle, but the project “will take a long time.” Meanwhile, this new product will begin production at its gigafactory in Austin, Texas.

In October 2023, Tesla asked the government of Nuevo León to build electrical, hydraulic, road and railway infrastructure so that the gigafactory can begin to be built on the right foot.

The Tesla plant in Mexico is not exactly due to nearshoring (it is not an issue of relocation of productive chains), but it does give an idea of what any company requires for its installation in Mexico.

An investment of the size of Tesla in Mexico requires months of research and a careful comparative analysis of the advantages and benefits that the country offers compared to other nations: supply chain, energy, water for industrial use, qualified labor, salaries, unions, infrastructure, communications, regulatory environment, free trade agreements, political and economic stability, among others.

These projects, with large investments, are managed with a certain level of confidentiality while the territory is explored to secure key support, mainly from the authorities of the three government levels. It is a public affairs experts work. The first step is to define where the investment will be located, for which regional intervention studies are required.

Northern Mexico could be the natural destination to receive investments derived from nearshoring for geographical, as well as economic and industrial development reasons. Currently, it is a reality that the main productive chains in North America are integrated on the Mexico – United States border: Baja California – California; Arizona – Sonora; Chihuahua, Tamaulipas, Nuevo León – Texas. But there are other regions, that offer different advantages and benefits, that should be considered.

Northern Mexico

The investments that would be attracted by nearshoring will not be distributed equally throughout the northern and central Mexico, where the manufacturing sector is mostly concentrated. According to GBM/CBRE Data and INDEX, during 2022, 99% of the relocation of production centers in Mexico was captured by 13 states; 50% settled in Nuevo León, followed by Mexico City (7%), Coahuila (7%) and Guanajuato (3%).

Nuevo León is the state best prepared for nearshoring investments due to its proximity to the United States, its potential for economic development (it is the entity with the greatest manufacturing activity and the second largest economy in the country, generating 7.6 of the national GDP), and it is among the first three positions in the State Competitiveness Index (ICE) 2023, of the think tank Mexican Institute for Competitiveness (IMCO).

Together with Nuevo León, Chihuahua and Coahuila, they are the states that lead the first three positions in the Industrial Development Index (IDI) 2023, due to a combination of factors such as their high participation in the industrial real estate market, their leadership in industrial GDP, manufacturing exports and attraction of Foreign Direct Investment.

Currently, it is not clear which investments in Mexico are derived from nearshoring because the Foreign Direct Investment metric is not exactly an indicator that determines it. However, according to the Deloitte Investment Monitor, from 2021 to September 2023, there are 100 projects from companies attracted to nearshoring, with an approximate investment of 33 billion dollars, located in Nuevo León, Coahuila, Guanajuato, Jalisco and Mexico City.

This shows that much of the efforts to attract investments falls to state governments, and not just the federal government, which has basically focused on offering tax benefits.

Baja California, for example, is working to consolidate the aerospace industry (currently the first in the country), through investment promotion organizations (made up of the government and the private sector) such as Mexicali EDC and Tijuana EDC, as well as strategies to attract California technology companies, such as setting up a government representative office in Silicon Valley.

South and southeast Mexico

The Mexican government intends for investments derived from nearshoring to cover the entire national territory. For this reason, it is working on the consolidation of the Interoceanic Corridor of the Isth of Tehuantepec, which will connect the Gulf of Mexico with the Pacific Ocean through railways, roads, industrial parks and interconnections with ports. By joining the ports of Salina Cruz, Oaxaca, and Coatzacoalcos, Veracruz, along with the 12 industrial parks that will be installed in this region, the potential to attract investments will increase.

The Interoceanic Corridor of the Isth of Tehuantepec could be positioned as a better option than the Panama Canal to facilitate logistics and the goods crossing between the Pacific and the Atlantic, because it currently faces the problem that the reservoirs that feed fresh water to the canal are drying up due to the lack of rain causing the transit of international ships to slow down.

Industrial clusters

It is not only a question of which of the Mexican states or regions are best prepared in terms of infrastructure and how industrially developed they are. Efforts of shared responsibility are also required, that is, the generation of tripartite cooperation schemes between companies, academia and government so that each industrial sector interested in developing in a certain region has efficient productive chains.

The formation of industrial clusters with members from the three parties is how a solution can be provided for the specialization of qualified labor, local supply promotion and use of new technologies. Under this clusterization model, it will be possible to attract investments, generate jobs and innovation, but, above all, economic development of the region.

Thanks to the NAFTA and now the USMCA, there are four large industrial sectors that have had the capacity to develop in the North American region: auto parts, light vehicle production, aerospace and medical devices. With nearshoring, other industrial sectors could develop or consolidate, taking advantage of the capabilities of each country, where Mexico manufactures high value-added goods, the United States develops technology, and Canada produces primary goods. Thus, Mexico, specialized in the manufacturing of goods, needs to consolidate this type of cooperation of shared responsibility or clustering to offer the complete package in the integration of productive chains.

The start of construction of the Tesla plant in Nuevo León is still uncertain and raises questions. What political-economic, regulatory or infrastructure factors Elon Musk’s team are considering? Thus, as in the case of Tesla, there may be several companies attracted to nearshoring with the same dilemma.

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