Gigafactory Mexico on the Back Burner As Tesla Claims Progress on Next-Generation EVs

Apart from the Cybertruck deliveries, Tesla fans are the most excited about the upcoming mass-market electric vehicle, which Tesla calls next-generation EV or next-generation platform. The plans for the most affordable Tesla EV were officially confirmed in March during Investor Day, and they involved groundbreaking manufacturing techniques that required a whole new factory layout. That's where Tesla's next-generation gigafactory entered the stage, with the prototype being built in Nuevo Leon, Mexico.

Elon Musk always referred to Tesla Gigafactories as the "machines that build the machines," and you can understand why when you realize how different they are from the industry's golden standard. The best representative of the Gigafactory concept is Giga Shanghai. This car manufacturing facility is optimized for efficiency, with almost all components produced on-site or very close and no warehouses to begin with. All the parts and components used are off-loaded directly on the production lines at precise moments and locations, requiring sophisticated choreography.

Giga Mexico was supposed to become the first gigafactory to pioneer a new manufacturing process called "unboxed vehicle." This requires a new factory layout, with the benefit of much higher efficiency and productivity while minimizing footprint. A lot of ink has been spilled this spring about Giga Mexico, but soon, it would become obvious that progress was slower than expected.

If you recall, Tesla brought Tom Zhu from China to supervise the construction work and ensure that Giga Mexico would advance from groundbreaking to building cars even faster than Giga Shanghai. Everybody was confident that the Nuevo Leon gigafactory would become visible on satellite maps before this year's end and start making cars sometime next year. And yet, nothing happened besides some permits and the promise of imminent groundbreaking.

The first hint that something was awry with Giga Mexico arrived with Walter Isaacson's book about Elon Musk. According to the famous biographer, Tesla changed plans and will not start the next-gen EV production at Giga Mexico. Instead, Tesla will build a pilot production line at Giga Texas and, when everything seems right, will transplant it to Giga Mexico and, possibly, to other gigafactories.

This information has now become official, as Elon Musk expressed his concerns about the economic environment. Tesla is working on infrastructure and factory design in parallel with the engineering and development of the next-gen platform, but Giga Mexico construction is now on hold. According to Musk, Tesla is "laying the groundwork to begin construction," but wants to see where the economy is heading before going "full tilt on the Mexico factory." But that doesn't mean the factory will be scrapped.

"We're definitely making the factory in Mexico," Musk replied to a question from Wells Fargo's Colin Langan. "We feel very good about that. We put a lot of effort into looking at different locations, and we feel very good about that location, and we are going to build a factory there, and it's going to be great. The question is really just one of timing."

Musk said that Tesla will start the initial construction phases next year, about a year later than initially announced. Tesla's CEO is terrified by the high interest rates and what this might bring if the global economy enters a recession. He recalled the 2009 crisis when GM and Chrysler went bankrupt, while "Tesla was just hanging on by a thread during that entire time."