There aren't more unusual bromances than the one recently formed between Elon Musk — the world's second-richest person — and Andrés Manuel López Obrador, the firebrand Mexican president who likes to brag he is so austere he has never used a credit card. The origin of this odd link-up is Tesla's decision to enter the Mexican market with a new battery-production facility — which the company calls a Gigafactory — to be built near Monterrey, the industrial hub close to the Texan border. AMLO, as the nationalist leader is known, hailed the company's decision as proof that Mexico is, "if not the first, among the three countries with more opportunities for foreign investment." He may well be right. Never shy to express his opinions, the president had to put aside his very public concerns about water shortages in the country's northern region and accept that Musk will build Tesla's plant exactly where AMLO didn't want one. It's a small price for the leftist leader to pay compared with the benefit of seeing Mexico entering the era of electric-vehicle production. That Tesla, which surely had tempting offers from other governments, picked Mexico for its next project — despite the fear that AMLO generates in elite circles — should be seen as a graduation moment for Mexican manufacturing. Business leaders in Latin America's second-largest economy celebrated the investment announcement as if it was a World Cup win. Weighing the Risks Mexico's manufacturing advantages in the post-pandemic world have outweighed deterrents such as political upheavals, security concerns, feeble rule of law and energy nationalism for multinationals. "We were frankly not expecting a multi billion-dollar investment under the current administration. Thus, this is proof that despite some of the bottlenecks and restrictions, companies are still finding Mexico attractive," Rodolfo Ramos, an economist at Banco Bradesco, wrote in a research note. "This will have an appealing inward-drawing effect for other companies including auto suppliers to consider Mexico for their production needs." Of course, geography and geopolitics play a massive role in this boom. With China in a new Cold War against the US, and with Russia likely isolated for years to come, many companies are relocating from Asia and Europe to Mexico to tap the benefits of the US-Mexico-Canada trade agreement and export to the US market tariff-free, a process known as nearshoring. By some measure, Mexico's industrial parks are already almost fully occupied and the challenge is to find free space with reliable electricity supply. But Tesla's entrance in Mexico also tells us something else: The country has come a long way from being a hotspot serving low value-added supply chains to an industrial powerhouse capable of building Audis Q5 and electric Mustangs for the global market. Last year, Mexico exported merchandise worth $578 billion, with 88% comprising manufactured goods from telephones to TVs and yachts. Most of this trade is with the US, signaling the economies' interdependence is growing. Looking at Mexico's weak performance on social indicators, it'd be easy to dismiss this as buzz. The industrialization process hasn't taken the country to the next level in terms of development and well-being. But that has more to do with politics and bad policy choices than with the strength and capacity of the industrial complex. As Tesla's entrance suggests, the moment for Mexico's manufacturers to take off has arrived. —Juan Pablo Spinetto in Mexico City |
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