Photo: Tesla
Tesla wanted Giga Mexico to beat Giga Shanghai, which took a record nine months from groundbreaking to production start. A new report from China shows that the first vehicles would roll out in the first quarter of 2025 instead of the planned H2 2024.
The Gen-3 automotive platform and the mass-market electric vehicles are the main reason Tesla chose Mexico for its next gigafactory. The low-cost and skilled labor allows Tesla to achieve a cost structure only possible in China until now. Musk named Tom Zhu, the man behind Giga Shanghai's success, to overview Giga Mexico construction, a guarantee that things would happen exactly as planned. Zhu vowed to start operations at Giga Mexico in less than nine months, beating Giga Shanghai's record.
Still, it appears that Tesla misjudged the Mexican labor market and business conditions, which are far different from the ones in China. A new report indicates that Tesla is already behind schedule with construction plans at its gigafactory in Nuevo Leon. Sources within the Chinese supply chain told Late Post that Tesla informed its partners to be ready to supply Giga Mexico in the first quarter of 2025. This is up to six months later than expected, considering the factory opening was initially planned for the second half of 2024.
It appears that building a factory in Mexico is nowhere near as simple as doing it in China. Tesla had to overcome higher labor costs and poor infrastructure. Strong labor unions mean overtime pay for the workers, which can triple the hourly wage for four overtime hours. In contrast, shifts at Giga Shanghai can be up to 12 hours without extra payments. Besides this, Mexico doesn't have the efficient logistic chain of Shanghai, where every component is sourced from nearby factories.
If you remember, Tesla doesn't even need to have warehouses at Giga Shanghai, as the components are offloaded from trucks directly on the production line where they are required. Tesla aims to recreate this by urging its Chinese suppliers to establish factories in Mexico. We've previously reported Tesla's pressure on suppliers to start operations in Nuevo Leon. The Chinese companies have been informed that failure to complete localized production in Mexico by 2025 would lead to losing orders from other Tesla gigafactories in the US and Europe.
The Chinese suppliers estimate that production costs are 15% higher in Mexico than in China. Still, Tesla's purchase price in Mexico would be 18-20% higher, which can increase the gross profit margin. This is an incentive not to waste time building their Mexican production facilities as soon as possible. Giga Mexico is expected to build up to 2 million EVs per year, nearly triple the amount built at Giga Shanghai in 2022.
Tesla insists on local production instead of importing components from China mainly because of the IRA provisions. To qualify for the $7,500 tax credit, the vehicles must undergo final assembly and have over 75% of components produced in North America, which means the US, Canada, Puerto Rico, and Mexico.
Still, it appears that Tesla misjudged the Mexican labor market and business conditions, which are far different from the ones in China. A new report indicates that Tesla is already behind schedule with construction plans at its gigafactory in Nuevo Leon. Sources within the Chinese supply chain told Late Post that Tesla informed its partners to be ready to supply Giga Mexico in the first quarter of 2025. This is up to six months later than expected, considering the factory opening was initially planned for the second half of 2024.
It appears that building a factory in Mexico is nowhere near as simple as doing it in China. Tesla had to overcome higher labor costs and poor infrastructure. Strong labor unions mean overtime pay for the workers, which can triple the hourly wage for four overtime hours. In contrast, shifts at Giga Shanghai can be up to 12 hours without extra payments. Besides this, Mexico doesn't have the efficient logistic chain of Shanghai, where every component is sourced from nearby factories.
If you remember, Tesla doesn't even need to have warehouses at Giga Shanghai, as the components are offloaded from trucks directly on the production line where they are required. Tesla aims to recreate this by urging its Chinese suppliers to establish factories in Mexico. We've previously reported Tesla's pressure on suppliers to start operations in Nuevo Leon. The Chinese companies have been informed that failure to complete localized production in Mexico by 2025 would lead to losing orders from other Tesla gigafactories in the US and Europe.
The Chinese suppliers estimate that production costs are 15% higher in Mexico than in China. Still, Tesla's purchase price in Mexico would be 18-20% higher, which can increase the gross profit margin. This is an incentive not to waste time building their Mexican production facilities as soon as possible. Giga Mexico is expected to build up to 2 million EVs per year, nearly triple the amount built at Giga Shanghai in 2022.
Tesla insists on local production instead of importing components from China mainly because of the IRA provisions. To qualify for the $7,500 tax credit, the vehicles must undergo final assembly and have over 75% of components produced in North America, which means the US, Canada, Puerto Rico, and Mexico.
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