Tesla Attracting Suppliers From Asia To Mexico For Giga Texas Provision

Although the production of Giga Texas is currently not very large as compared to the numbers of Fremont or Giga Shanghai factories, the role of Giga Texas in Austin will actually be very relevant in the future of Tesla. And for a factory to produce a lot, it is convenient to have the main suppliers close: a very valuable lesson learned in recent years in the automobile industry.

Iván Rivas Rodríguez, Secretary of the Economy of Nuevo León, told Forbes that Tesla is asking Asian suppliers to be closer to its Texas factory. The southern neighbor of the United States has a free trade agreement subject to a series of conditions. The Trump Administration basically ended the NAFTA treaty, and under the conditions of the current USMCA (known as T-MEC in Mexico), wages were increased in order to avoid competition considered unfair.

As a side note, the Agreement between the United States of America, the United Mexican States, and Canada, commonly known as the United States–Mexico–Canada Agreement (USMCA) in the United States and the Canada–United States–Mexico Agreement (CUSMA) in Canada, is a free trade agreement between Canada, Mexico, and the United States. It replaced the North American Free Trade Agreement (NAFTA) implemented in 1994, and is sometimes characterized as "NAFTA 2.0", or "New NAFTA", since it largely maintains or updates the provisions of its predecessor.

USMCA resulted from renegotiations between the NAFTA member states beginning in 2017; characterized as "tumultuous", these centered primarily on "auto exports, steel and aluminum tariffs, and the dairy, egg, and poultry markets". All sides came to an informal agreement on September 30, 2018, which was formalized the following October 1. U.S. President Donald Trump proposed USMCA during the 2018 G20 Summit, where it was signed by Trump, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau. A revised version reflecting additional consultations was signed December 10, 2019 and ratified by all three countries, with Canada being the last to ratify on March 13, 2020. Following notification by all three governments that the provisions were ready for domestic implementation, the agreement came into effect on July 1, 2020.

USMCA largely modernizes the 25-year-old NAFTA's provisions, namely with respect to intellectual property and digital trade, and borrows language from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Canada and Mexico are signatories. Key changes from its predecessor include increased environmental and working regulations; greater incentives for automobile production in the U.S. (with quotas for Canadian and Mexican automotive production); more access to Canada's dairy market; and an increased duty-free limit for Canadians who buy U.S. goods online.

Going back to the Secretary of the Economy of Nuevo León (Mr. Rivas), he commented that five Tesla suppliers have already settled in Nuevo León, Mexico: manufacturers of seats, sensors, cameras and computer components for EVs. Another ten corporations are analyzing the convenience of establishing a branch in the area, though the names of these companies have not been specified yet, except for Quanta Computer and Bosch.

“We are working with other companies (Tesla suppliers) and 10 companies are analyzing whether Nuevo León is the best place to establish themselves and we are convinced that this is the case, because there is human capital, infrastructure, security and tools that they need to continue exporting to the United States", Mr. Rivas told Forbes.

The State of Nuevo León in northern Mexico geographically borders the State of Texas, so the choice seems very obvious in terms of transportation and proximity. Moreover, the official explained that the Texan cities of Dallas, Houston and San Antonio -the golden triangle- are experiencing an industrial boom, and they have to take advantage of it.

Tesla has several factories in the United States, beginning with the one in Fremont, California; then Giga Nevada and Giga Texas. In addition, it is planning its expansion in Canada, as we mentioned in other articles before. There are two other industrial hubs outside of North America: Giga Shanghai in China, with more than 90% local content, and Giga Berlin in Germany. The European factory is expected to go into full capacity towards the end of this year, with a third production shift expected soon.

Source: Forbes

All images courtesy of Tesla Inc.

Nico Caballero is the VP of Finance of Cogency Power, specializing in solar energy. He also holds a Diploma in Electric Cars from Delft University of Technology in the Netherlands, and enjoys doing research about Tesla and EV batteries. He can be reached at @NicoTorqueNews on Twitter. Nico covers Tesla and electric vehicle latest happenings at Torque News.