Electric automaker Tesla has received land-use permits from Mexico’s federal environment ministry to build a planned “gigafactory” in the northern border state of Nuevo Leon, the state government announced on Tuesday.

The state government on Tuesday said the land designated for the plant spans around 261 hectares (645 acres).

The automaker in March announced plans for a new factory in Mexico without providing a timeline for construction.

The Nuevo Leon government has estimated it would cost more than $5 billion but Tesla is yet to share a capital cost forecast.

CEO Elon Musk said in October that he was hesitant to go “full tilt” on plans for a factory in Mexico given the uncertain economy.

After his comments, Nuevo Leon said the government would spend more than $130 million on infrastructure to support construction.

Nuevo Leon has agreed to build an electric power substation, a natural gas pipeline, railroad spurs, roads, and services for water and sewage, Reuters previously reported. The so-called “Gigafactory” is set to bring in an estimated $15 billion over the next two years through Tesla and its suppliers, Nuevo Leon Governor Samuel Garcia said in October.

Mexico has touted the Tesla project as proof the “nearshoring” trend is taking off as companies seek to move production away from Asia and set up operations closer to the United States.

In October, a state official told Reuters that approvals from the environment ministry would allow Tesla to begin construction on the site.

Tesla and a spokesperson for Nuevo Leon did not immediately respond to a request for comment late on Tuesday.

Source: Reuter

Mexico projects to receive an estimated foreign direct investment (FDI) of 106.418 billion dollars (mdd) during the next two to three years, according to the Ministry of Economy (SE).

This forecast arises from the plans of international companies, highlighting the trend towards the relocation of supply chains, known as nearshoring, which Mexico Industry has dealt with extensively.

Up to the third quarter of 2023, Mexico has already registered an FDI of $32,926 million dollars, showing an increase of 2.4% with respect to the same period in 2022. Of this investment, 76% comes from reinvestment of profits, according to SE data.

Foreign investors

The investment plans announced, with an average of $35.472 million dollars per year, come mainly from companies in the manufacturing sector (40%) and represent expansions of companies already established in Mexico by foreign investors (67%).

The SE highlights that these announcements reflect the confidence of foreign investors in maintaining and expanding their investments, as well as the interest of new companies to establish themselves in the country.

These plans include projects in the automotive sector, such as those of Tesla, as well as initiatives related to the transportation of liquefied natural gas and the construction of industrial parks, among others.

Investment diversification

The projected figure is expected to exceed the average recorded in 2022, when Mexico reached an FDI of $35.291 billion dollars, the highest in seven years.

In addition, it is highlighted that a quarter of the expected investment comes from companies with no previous presence in Mexico, originating in countries such as China, Taiwan, Denmark and Germany, which according to the SE represents a diversification in the origin of resources.

Reducing excessive dependence on China

The disclosure of this figure coincides with the visit of U.S. Treasury Secretary Janet Yellen to Mexico, who has expressed the need to reduce her country’s excessive dependence on China in terms of manufacturing.

The United States continues to be the main source of FDI in Mexico, leading investment announcements with commitments for $42,095 million dollars in the coming years, followed by China, with a pledge of $12,610 million dollars, despite currently being in the 80th position as origin of FDI in the country.

Source: Mexico Industry

Nearshoring in Mexico, for example, could make the economy grow 3.7% per year, after only growing 2.6% per year in the last two decades.

Nearshoring in Mexico represents an economic opportunity for the country only comparable to what was seen after the implementation of the North American Free Trade Agreement (NAFTA) in 1994 and, if well exploited, could generate the greatest economic growth since the “Mexican miracle” (1941-1982). This was the opinion of the general director of Economy, Business & Indicators (ECOBI), John Soldevilla.

According to the economist, “there is no country in the world with a better opportunity than Mexico to take advantage of this new phenomenon” known as nearshoring, which is nothing more than a business strategy to relocate part of the production and supply chains of companies to areas closer to their main target market. Tesla’s arrival in Nuevo León is a clear example of this.

While there are conditions that triggered nearshoring in Mexico and are now mitigated, such as the crisis in global supply chains and the surge in transportation rates caused by the Covid-19 pandemic, there are others that will persist in the medium term and give Mexico a unique competitive advantage in the world: the trade war between the United States and China; Russia’s war against Ukraine; and the increase in the cost of labor in Asia.

According to the economist, Mexico’s competitive advantages to position itself as a natural candidate to benefit more from nearshoring are the solid production and logistics chains developed with the United States as a result of NAFTA; shorter production and shipping processes than in other regions of the world; similar time zones with the United States, which facilitates communication between production and suppliers.

Also, the availability of skilled labor; Mexico is the country with the most trade agreements and treaties in the world; it is the largest exporter of manufactured goods in Latin America and the main commercial supplier to the United States, surpassing China.

But, just as there are advantages, there are also challenges to overcome in the country for nearshoring in Mexico to become a reality. Some of them are legal certainty for foreign investment; social problems, security, organized crime, corruption and impunity; development and modernization of more transportation logistics infrastructure, ports, airports, customs capacity, clean energy, as well as more skilled labor.

But, just as there are advantages, there are also challenges to overcome in the country for nearshoring in Mexico to become a reality. Some of them are legal certainty for foreign investment; social problems, security, organized crime, corruption and impunity; development and modernization of more transportation logistics infrastructure, ports, airports, customs capacity, clean energy, as well as more skilled labor.

The economist pointed out that the weakness of nearshoring in Mexico is that, unlike NAFTA, it is not a State policy on the part of Mexico, nor is it an agreement signed with the United States, but a product of unintended circumstances: the economic effects of the Covid-19 pandemic, the trade war between the United States and China, and Russia’s war against Ukraine.

Possible effects of nearshoring in Mexico

For the general manager of ECOBI, nearshoring in Mexico is a unique opportunity that is unlikely to be repeated in the future. And it also has an expiration date. That is, it will not be there forever, so capitalizing on all its benefits is crucial for the country. But what could those benefits be for Mexico?

John Soldevilla assured that the benefits of nearshoring could be visualized in a seven-year horizon, which was more or less the time in which NAFTA showed its main effects. In this way, the economist stated that from 2023 to 2030, if all the benefits of nearshoring are captured in Mexico, these results could be expected:

• The Mexican economy could grow 3.7% per year, after only growing 2.6% per year in the last two decades.
  Manufacturing would account for 96% of total exports.
• Investment would grow 7.4% per year and would be equivalent to 28.6% of GDP, its historical maximum.
• The big winner of this phenomenon would be the manufacturing sector, representing 22.4% of GDP in 2030, its historical maximum.
• Around one million new formal jobs would be generated per year.
• Exports would increase from 578 billion dollars in 2022 to 1.1 trillion dollars in 2030, going from 39% to 49% of GDP.
• Foreign investment would increase from US$36 billion in 2022 to US$87 billion in 2030, rising from 2.5% to 3.8% of GDP.

John Soldevilla considered that, unless some extraordinary internal or external phenomenon occurs, known as a black swan in economic jargon, the end of the six-year term should be orderly, without an economic or financial crisis. The probability of a crisis is low, with a moderate bias, given the presence of few risk factors in amber traffic light.

ECOBI analyzes 16 macroeconomic risk factors in our model, of which two are a source of concern this year (red traffic light): the Fed and Mexico’s rates. The rest are either green (low risk) or amber (moderate risk).

“Before 1995, most of the factors were in red and a crisis was imminent. Today, things are very different, our economy is stronger or more resilient. Our economy has better indicators than other emerging economies in the region. Therefore, Mexico’s potential is very great,” said ECOBI in a presentation to journalists.

ECOBI pointed out that, of the state economies, five states in the north of the country could benefit the most from nearshoring in Mexico, with Nuevo León leading the way. “Nuevo León is the first manufacturing entity in the country in GDP, FDI, employment and about to be the first in IMSS wages. Except for the CDMX, it is far behind the rest of the entities in terms of financing.”

“The top five places in exports correspond to entities in the north of the country, accumulating together almost 48% of the national total. Its export rate is high and its exports are mainly concentrated in transportation equipment (automotive) and electronic accessories and computer and communication equipment. The industry that could benefit most from this Nearshoring era is that of vehicles, electronics, auto parts, among others. Even construction itself.

Source: Forbes

Mexican car production grew by 13.54% year-on-year in the first three quarters of 2023, showing the recovery of the country’s main industry, informed the National Institute of Statistics and Geography (Inegi).

Mexican plants assembled more than 2.85 million light vehicles from January to September, about 340,000 more than in the same period of 2022, Inegi detailed in its report.

“Light trucks accounted for 76.3% of the total produced, while the rest corresponded to the manufacture of vehicles,” the autonomous agency specified.

Meanwhile, vehicle exports increased by 14.22% year-on-year in the first nine months of the year, totaling 2.42 million.

On the other hand, domestic sales of light vehicles in the first three quarters of 2023 rebounded by 24.94%, with 975,841 units sold nationwide.

Inegi’s report detailed that, last September alone, car manufacturing in Mexico grew by 23.99% year-over-year, to a total of 338,899.

Meanwhile, vehicle exports in the ninth month of the year soared 15.99%, to 301,341 units.

Likewise, car sales in the domestic market rose by 35.6% to 118,038 light vehicles.

According to the Mexican Automotive Industry Association (AMIA), the automotive industry is important for Mexico because it represents almost 4% of the national gross domestic product (GDP) and 20.5% of the manufacturing GDP, more than any other sector.

Source: Mexico Now

The National Council of the Maquiladora and Manufacturing Export Industry (Index) estimates that Mexico will receive investments of around US$50 billion from the relocation of companies from Asia and the United States, a phenomenon known as nearshoring.

“At least 60% of the investment projected for Mexico due to the relocation of companies will come through the manufacturing industry, estimated Luis Manuel Hernández, president of Index Nacional.

The maquiladora industry representative said that the export of manufacturing products is one of the engines of the national economy.

More than 62% of the country’s trade is generated by manufacturing companies, generating one-fifth of Mexico’s formal employment, he highlighted during the XLVIII National Convention of the Export Manufacturing Industry.

He added that 70% of these products are consumed by the United States.

Hernández described as unbeatable the opportunity that the country has in view of the relocation of companies, the rearrangement of supply chains and the trade relationship with the United States and Canada.

The energy sector in Mexico is a key industry for capitalizing on nearshoring, and companies have focused on reducing costs and distances between production centers and consumer markets, through collaboration mechanisms in the region in order to strengthen supply chains.

Source: Mexico Now

Construction of the factory to be located in the metropolitan area of Mérida, Yucatán will begin next year and its vocation will be to serve mainly the domestic market; this is the second investment announcement in the sector in less than a month.

Upon announcing the injection of 8.7 billion pesos for the construction of its eighth beer plant in the country, Heinekein Mexico announced that the complex to be located in the state of Yucatan will continue its expansion in the coming years, for which there will be more investment announcements.

The general director of Heinekein Mexico, Guillaume Duverdier, informed that the construction of the factory, which will be located in the municipality of Kanasín -conurbed to the municipality of Mérida- “will start in 2024 and the first production will begin in 2026, in a first phase and we leave the possibility of opening new production lines in the future due to the development of the market”.

During the investment announcement ceremony, the executive assured that “Mexico is one of the most important operations for the company”, and informed that a plant will be built with “state-of-the-art and sustainable” technology. The plant, he informed, will use renewable energy, as part of the energy development undertaken in the southeast.

Yucatán, Mexico, the home of a new star”, where 2,000 jobs will be generated, he highlighted.

For the brewing industry, Mexico offers opportunities to grow, and “in the southeast we have seen that there is potential,” said Duverdier.

In a subsequent interview, he said that the new plant, considered “world class”, will supply the southeastern Mexican market with 90% of its production, while the remaining 10% will be sent to the United States.

“Depending on the growth of the market we will invest more,” assured Heinekein’s CEO, arguing that given the growing demand in consumption, “we needed greater production capacity (and) taking into account several criteria to know where was the best place to diversify, as well as infrastructure and support from the authorities, we concluded that Yucatan meets all these requirements.”

The company works with 5, 10 and 15-year plans and as markets develop, forecasts are refined, “when the first stone of the plant is laid, the production data in volume of liters will be announced”.

The brewery intends to start operations in 2026, with the production of emblematic brands such as: Amstel Ultra, Superior, Tecate, Sol, Dos Equis, Bohemia, Indio and Carta Blanca.

The executive mentioned that this project will be “responsible” with the environment and there is a commitment to use less water for brewing. This is 1.8 liters of water per liter of beer, taking into account that it currently uses 2.4 liters, and the world average is 3.5 liters.

Present at the ceremony, the Secretary of Economy, Raquel Buenrostro, added: “The new beer plant (of Heineken) with the implementation of green technology and the efficient use of natural resources is part of this government’s policy to install investments in the Mexican Southeast”.

Mauricio Vila, governor of Yucatán, committed to liaise with local governments to take advantage of infrastructure projects such as the Mayan train and the Isthmus of Tehuantepec route.

Leading exporter

Mexico strengthened its position as the world’s leading beer exporter in 2022, with shipments of 6.031 billion dollars, a year-on-year increase of 7.4% and a record.

In the world ranking, the Netherlands ranked second, with US$2,157 million, reflecting a 0.4% drop in 2022 over 2021.

Subsequent positions were occupied by Belgium ($1.677 billion, down 16.2 percent), Germany ($1.205 billion, down 14.4 percent) and the United Kingdom ($598 million, up 5.3 percent).

In 2021, Mexico sent 96% of its total beer exports to the United States, and a year earlier that coverage was 92%.

More investments

In addition to Heineken, U.S.-based Constellations Brands is also working to expand its production capacity in Mexico.
Constellations Brands is building a new beer production plant in Veracruz, where it will mainly invest 1 billion dollars programmed for 2023, investments that are part of a multi-year amount earmarked for the project.

Also in the brewing sector, in mid-August Grupo Modelo and Millfoods announced that they will invest 300 million dollars to build a corn processing plant for beer production, to be located in the municipality of Salamanca, Guanajuato.

The plant will produce corn grits and process grain harvested in Mexico, which will also serve to replace imports.

Source: El Economista

The company Mincer HD (MAT Holdings, Inc.) will set up in Mineral de la Reforma, Hidalgo with an investment of US$70 million, which will generate 350 direct jobs and 1,500 indirect jobs in the first stage.

This was announced by Carlos Henkel Escorza, head of the Secretariat of Economic Development (Sedeco) of Hidalgo, who welcomed the English company, which is a world leader in engineering and manufacturing of cast and machined automotive products.

The company has distribution centers, supply offices and 15 production plants in eight countries, and plans to set up 17 more.

In this sense, the transnational company will build two plants in the municipality of Mineral de la Reforma; the first focused on the casting of drums and the second on machining parts for the automotive sector.

Henkel Escorza recognized Steve Wang, CEO of Mat Holdings, for his vision and confidence to invest in Hidalgo in a project of great impact, since apart from generating jobs, they are committed to sustainability.

In response, Steve Wang expressed that this first step to establish in Hidalgo will be a beginning of growth for this company in Mexico and they will work in close cooperation with the state government.

Source: Mexico Now

Kuntai Company is looking to set up in Durango, a region where it plans to invest around 57 million dollars and generate 500 direct jobs.

The Chinese company is engaged in the design, development, production and sales of soft interiors for vehicles. It is also a global supplier of automotive parts, with commercial partners such as Audi, Volvo, GM, Toyota, Nissan and BMW. However, it stands out for being Tesla’s main supplier.

Products made by Kuntai Company include essentials such as floor mats, inner and outer wheel covers, spare tire covers, as well as seat back motor cover plates, among others.

Durango Governor Esteban Villegas Villarreal met with Zhang Ming, CEO of Kuntai Company, and Zhang Ming Di, Executive Vice President in China, marking the beginning of a crucial investment in Durango.

Kuntai Company’s decision to locate in Durango is based on multiple advantages, including the availability of essential services such as water, electricity and natural gas. In addition, the strategic land connectivity from Mazatlan to the United States adds a vital component to the proposal.

Kuntai Company is currently in search of suitable land to build its industrial warehouse and yard in the state of Durango.

Source: Mexico Industry