As with everything that Tesla says and does, its investment in
Mexico for a new vehicle plant has attracted much attention. The
latest hubbub around the Santa Catarina, Nuevo Leon, plant
surrounds reports that Tesla is looking to invite its mainland
Chinese suppliers at its operations in Shanghai to join it in
investing in Mexico. That it is looking to bring some of its
mainland Chinese suppliers to Mexico is not surprising. Original
equipment manufacturers (OEMs) do this all the time with their
preferred suppliers. However, Mexico, as an automotive investment
destination, is doing very well, thank you, with or without
Tesla.
We will turn to why Mexico's doing so well in good time. First,
we will address the elephant in the room. S&P Global Mobility
has analyzed recent investment announcements by mainland Chinese
suppliers where Mexico is the destination. Using our bespoke
Component Forecast Analytics (CFA) suite of supply chain data, we
have then traced back those suppliers that are engaged with Tesla
at its Shanghai facilities.
The analysis reveals that out of the 90 investments by mainland
China-affiliated automotive companies in Mexico from 2019 until the
present, 21 of them, or 23.3% of the companies, are known Tesla
suppliers. Of course, even if a company is a known Tesla supplier,
it does not necessarily follow that those suppliers' facilities
will expressly supply Tesla. This is illustrated by the fact that
where the investment location is known, only nine of the 21 are
setting up in Nuevo Leon.
While there is some substance in Tesla wanting to 'lift and
shift' some of its Shanghai supply chain to Santa Catarina, it is
not a wholesale replication. That is because many of its Shanghai
suppliers are the everyday suppliers you would see anywhere else in
the world with a few exceptions. For example, a cut-down list of
suppliers for Tesla's Model 3 manufactured in Shanghai is a who's
who of Western tier-1 and tier-2 suppliers.
So why the drip-feed of information to the media about Tesla's
plans for Mexico? The Santa Catarina plant is central to the next
stage of its growth at a time when Tesla is facing headwinds in the
market. Santa Catarina is central to those plans, whether or not
they involve the prior entry-level car or as the pivot to focus on
robotaxis. Either route means that costs have to be controlled (cf.
Tesla's unboxed production
system), and Tesla has to keep its suppliers on the right side
of its cost projections. What better way to keep supplier costs
down than using countervailing power?
The noise surrounding Tesla's new plant, as well as the prospect
of mainland China-domiciled suppliers locating there, does Mexico
and its wider automotive sector a disservice. Directorio
Automotriz, a Mexican public relations agency that acts as a
go-between for the various stakeholders involved in setting up shop
in Mexico, tracks automotive investments in the country. Its data
for the past two and a half years does demonstrate the inroads made
by mainland China-domiciled suppliers, but it also shows a broader
base of interest in Mexico. Over the period, Mexico attracted $31.9
billion in automotive FDI from 32 countries.
The two biggest factors behind any FDI relate to the local
market, in both size and growth. Mexico is well-placed due to the
number of markets that companies there have access to. The biggest
pull remains tariff-free access to its neighbors, the US and
Canada, through the United States-Mexico-Canada Agreement (USMCA).
This has proved attractive to OEMs (and a route to market that may
be closed to future investments according to a Reuters report on
April 18) in terms of building vehicle manufacturing capacity
in the country, and where OEMs tread their suppliers follow.
Between 2015 and 2025 (which excludes Tesla's plant), 1.9 million
units of light vehicle manufacturing capacity will have been added
according to S&P Global Mobility data, making Mexico the third
biggest contributor to global capacity growth.
While Tesla has had a significant role in shaping the automotive
industry since its inception, it is not always the ultimate
arbiter. That is something worth remembering when every Tesla move
or pronouncement by Elon Musk is subject to amplification often
beyond its significance. Tesla's decision to set up shop in Santa
Catarina is the cherry on top of a cake that already benefits from
many of the right ingredients.
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