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Tesla’s $10 billion mega-factory in Mexico is in doubt after Donald Trump regained the presidency.
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Elon Musk paused the project before the election, warning that higher tariffs could impact it.
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Analysts said tariffs on cars imported from Mexico would have serious consequences for U.S. automakers.
President-elect Donald Trump has said he wants to crack down on automakers building cars in Mexico — and that could be a problem for Tesla, whose CEO is one of Trump’s most outspoken supporters.
Trump has announced he will impose tariffs of more than 200% on vehicles imported from Mexico, a move that analysts told Business Insider could plunge the US auto industry into crisis.
It has also put a new $10 billion factory proposed by one of its biggest backers in limbo.
Tesla announced in March 2023 that it planned to build its seventh gigafactory near the industrial center of Monterrey, Mexico.
The project has since been hit by delays and uncertainty, with Elon Musk telling investors earlier this year that it was on hold until the election results were clear.
“Trump has said he will impose heavy tariffs on vehicles produced in Mexico, so there is no point in investing heavily in Mexico if that is going to be the case,” the Tesla CEO said in July. Musk was betting big on the former president’s election campaign and could play a role in his government.
Trump’s victory has pushed Tesla’s project even further into purgatory. Mexico’s economy minister told local media last week that he planned to organize a meeting with Musk to clarify the status of the factory.
Trump vowed to crack down on automakers building cars in Mexico during the campaign, and the prospect of new tariffs could force U.S. automakers like Tesla to make some tough choices about operating or planned factories in Mexico.
Investment bank UBS warned that any tariffs on Mexico would be “highly disruptive” to the entire US auto industry, in an analyst note released after the election. Analysts told BI that Trump’s tariffs would deter automakers like Tesla from investing in Mexico.
“Everything is up in the air with the Tesla factory,” said Sam Fiorani of AutoForecast Solutions. “Depending on the level of tariffs, this could complicate investments in Mexico.”
An impending crisis
Fiorani told BI that factories in Mexico were critical to U.S. manufacturers — especially the Detroit “Big Three” of Ford, General Motors and Stellantis — because they offered cheap parts and labor.
According to Morningstar analyst David Whiston, General Motors and Stellantis produce about a third of their full-size pickup production in Mexico, while Ford builds its compact Maverick pickup there.
Mexico is also a crucial production center for the Ford Mustang Mach-E EV, built at the Cuautitlan plant.
The country’s free trade agreement with the United States, which allows automakers to import vehicles across the border without tariffs and is due for review in 2026, has attracted other automakers outside the Big Three.
Toyota, the world’s largest automaker, announced in 2020 that it would move production of its Tacoma pickup from the US to Mexico, while Nissan and Volkswagen also have factories in the country.
Mexico has also attracted interest from Chinese automakers, sparking fears among some lawmakers that they could use the country as a “back door” into the U.S. market.
Chinese EV giants BYD and MG have both announced plans to build factories in the country. BYD has denied reports that it has suspended these plans pending the election results.
Other automakers have expanded their presence in Mexico despite election uncertainty and the prospect of tariffs under a second Trump term.
Stellantis brand Jeep is building its first electric car, the Wagoneer S, at its Toluca plant in Mexico, according to an analysis of the company’s 2024 manufacturing operations.
The CEO of Chrysler, another Stellantis brand, also recently confirmed that it was expanding a factory in Mexico as a “pressure relief valve” for U.S. truck production, after The Wall Street Journal reported that the company was considering selling its best-selling Ram 1500 truck south of the border. .
German luxury brand BMW, meanwhile, is investing 800 million euros ($861 million) in expanding its plant in San Luis Potosí, Mexico, which is expected to produce the company’s next-generation Neue Klasse series from 2027.
“Imposing tariffs would be a deterrent. It would make it difficult if you plan to export to the US,” Stephanie Brinley, an auto analyst at S&P Global, told BI.
She added: “It makes building a factory in Mexico more expensive and less attractive.
Costly dilemma
Brinley added that many automakers with a significant U.S. presence had been based in Mexico for decades, meaning it would cost billions and be very difficult to move production to the U.S. or other markets in response to tariffs.
“That would be a huge investment issue… it would probably require a staggering amount of money and it wouldn’t be something they could do quickly. Changing that manufacturing footprint would take at least five years,” she said.
Ultimately, Brinley said many U.S. automakers may decide it is in their best interest to stay put despite the tariffs — something she said could lead to higher prices for consumers north of the border.
“That’s where the tariff ultimately hurts consumers because these companies won’t just eat the tariff. Some, if not all, of the costs would be passed on to consumers,” Brinley said.
Tesla, GM, Ford and Stellantis did not respond to requests for comment from BI.
Read the original article on Business Insider
