Tesla Slows Down the Construction of Its Plant in Mexico Due to high interest Rates

Elon Musk said that until interest rates drop, Tesla will take its time constructing the assembly plant planned for Mexico out of fear of another crisis like the one in 2009 that nearly bankrupted manufacturers like General Motors (GM).

Factors Affecting Construction Plans

In a call with analysts and media following the presentation of Tesla's financial results for the first nine months of the year, Musk reiterated that concerns about high interest rates, as well as the outbreak of armed conflicts, such as those in Ukraine and Gaza, are slowing down plans for the construction of that plant.

"We want to understand the state of the global economy before we go full throttle with the plant in Mexico. I am concerned about the high-interest landscape we are in," said the entrepreneur.

Musk reasoned that the issue is the monthly payments for "the vast majority of people who buy a vehicle and with the rise in interest rates, the proportion of interest in those monthly payments naturally increases."

He later clarified that Tesla will "definitely" build an assembly plant in Mexico, where they already have a location.

"It's a matter of time," he explained, adding, "Interest rates have to come down."

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Caution Based on Past Experience

The entrepreneur stated that if he knew what interest rates would be in the future, he could indicate when the plant would be built.

"We will start the next construction phase next year, but I still have scars from what happened in 2009 when General Motors and Chrysler almost went bankrupt. It is etched in my mind. So I'm not going full speed ahead into uncertainty," he concluded.

Tesla reported on Wednesday that in the first nine months of 2023, its net profits of $7.069 billion (about 6.707 billion euros) fell by 20.3% compared to the same period in 2022. The company stated that high production costs in its new assembly plants negatively affected its profitability. Tesla's presence in Mexico carries significant importance for the country.

Firstly, it represents a substantial economic investment, creating jobs and bolstering Mexico's economy. The construction of a Tesla plant generates employment opportunities in manufacturing and within the extensive supply chain, including parts suppliers. This economic stimulus is vital for Mexico's prosperity and employment rates.

Secondly, Tesla's expertise in electric vehicle (EV) technology offers Mexico the advantage of technology transfer. Workers in Mexico gain exposure to cutting-edge automotive technologies, fostering growth in the country's automotive industry and expertise in EVs. As the global demand for EVs surges, Mexico can capitalize on its manufacturing capabilities to export these vehicles internationally.

Lastly, Tesla's focus on electric vehicles aligns with Mexico's environmental goals. With the commitment to reduce emissions and combat climate change, having more EVs on Mexican roads is pivotal. Tesla's investment also stimulates infrastructure development, including electric vehicle charging stations, which are vital for expanding the EV market in Mexico. Moreover, Tesla's presence can enhance Mexico's role in the global automotive supply chain, strengthening its position as a key manufacturing hub for the industry.