The Drive Behind Tesla’s New Manufacturing Plant in Mexico

Tesla’s plan to open a Gigafactory in Monterrey is welcomed by local business elites, but will only deepen processes of labor devaluation and technological dependency.

April 4, 2023

The Monterrey skyline. Tesla's new factory will be built just outside the city. (Daniel Escobedo / Wikimedia Commons / CC BY-SA 4.0)

On February 28, Mexico confirmed that Tesla will install an assembly plant in Monterrey, a northeastern city in Mexico located only 220 kilometers from the border city of Laredo, Texas. This will be Tesla’s seventh assembly plant and its third outside the United States; the other two are in Shanghai and Berlin. The announcement has caused great fanfare and celebration by corporate media in Mexico and the United States, with claims that the new Gigafactory will drive technological, industrial, economic, and social spillovers in Mexico, especially in the context of the new North American Free Trade Agreement (USMCA), which replaced NAFTA in 2020.

Specifically, the announcement has given new momentum to long-standing and predominant narratives that place foreign direct investment and the export manufacturing industry as a lever for industrial development and social welfare in Mexico. Samuel García, the governor of the state of Nuevo León where Monterrey is located, has spoken excitedly about Tesla’s imminent arrival, stating that such opportunities “happen once every 100 years.” García went on to say on Twitter that with the new auto plant, "Mexico won, Nuevo León won, we won."  Tesla’s investment also has been lauded as a sign of the nearshoring trend that pundits argue is happening in the North American region, in which production is relocated from China to Mexico on the heels of recent supply chain uncertainty linked to the Covid-19 pandemic and geopolitical acrimony between China and the United States.

However, there is considerable evidence that Mexico’s conversion into an enormous export manufacturing platform—dedicated entirely to supplying the insatiable U.S. market— has not resulted in the kinds of progressive modernization and industrial development outcomes celebrated by industry promoters. Rather, Mexico continues to occupy the least value-added, most labor intensive, and most poorly-paid niches of the North American production complex. The country’s proximity to the United States, the meager wages received by Mexican workers, and the predominance of neoliberal economic policies of indiscriminate trade openness—that allow transnational corporations to operate in Mexico tax and duty-free— continue to be the comparative advantages that make the country highly attractive for corporations such as Tesla, among many others. It is therefore doubtful that the arrival of Tesla will change the long-enduring forms of labor precarity, technological dependency, and industrial disarticulation that drive Mexico’s “competitiveness” in North American and global economies. Instead, these very characteristics are driving Tesla’s efforts to open a factory in Monterrey.

In this context, we can understand Tesla’s decision to set up shop in Mexico as a desire to gain a competitive advantage over other automotive companies by reducing manufacturing costs. Tesla faces intense competition from other firms that are now producing electric vehicles (EVs) at lower prices. Between 2021 and 2022, the company’s share of the EV global market dropped from 17 percent to 12 percent, and from 72 percent to 65 percent  in the U.S. market. In contrast, corporations such as BYD (currently the world’s largest producer of EVs), SAIC, Geely-Volvo, Toyota, and VW have expanded their sales in the global market, offering much cheaper cars than the luxury vehicles sold by Tesla to date. Tesla’s new factory in Mexico appears to be part of a strategy to reduce the price of their vehicles by launching a more accessible line of EVs.

Reducing the price of automobiles is not achieved through the simple manipulation of supply and demand, as neoclassic perspectives assume, but through transformations in the sphere of production that help companies maintain high profit rates through decreasing production costs. It is here where Mexico becomes relevant: opening a factory in Mexico will help Tesla achieve this goal at the expense of a vulnerable and precarious labor force, thereby expanding its market share while maintaining its competitiveness.

As Marxist political economists have demonstrated, production costs are decreased through processes of labor devaluation—the reduction of wages and the super-exploitation of the labor force. To this point, assembly-line wages in Mexico are 10 to 20 times lower than in the United States. Researchers have also documented how low wages are accompanied by the deterioration of worker health, the inability of workers to cover the basic costs of living, and the need to engage in additional livelihood strategies to survive. Tesla is only the most recent in a long list of transnational automotive firms that have found Mexico to be an exceptionally advantageous place to manufacture goods.  This is due not only to its proximity to the United States, but also because of the huge profit surpluses generated by long-term and ongoing forms of labor devaluation that drive Mexico’s ranking as one of the world’s largest, and most important, car and auto parts manufacturers.

Why Monterrey?

In this larger context, it is important to illuminate why Tesla chose Monterrey as the site of their new assembly plant. First, Monterrey is an industrial city close to the largest transportation and trade hub on the U.S.-Mexico border, Laredo, Texas and Nuevo Laredo, Tamaulipas. Its proximity to this border hub will give the plant easy access to the U.S. market, ensuring reduced logistics costs. The new facility in Monterrey, expected to begin producing vehicles as soon as next year, will also be strategically close to another recently created Tesla factory in Austin, Texas, which will most likely supply batteries for the cars manufactured in Monterrey.  

Second, Monterrey’s industrial development has been shaped for generations by a group of political and economic elites, commonly known as the burguesia regiomontana (residents of Monterrey are referred to as regiomontanos), that has deep and long-standing ties to U.S. corporate interests, particularly in Texas. This group of powerful business elites has historically been resistant to supporting social welfare and domestic economic development, and instead has promoted the implementation of neoliberal economic policies in Mexico. Tesla will be able to draw on these long-standing relationships and policies, supportive of transnational corporate power, as it builds a cross-border manufacturing complex to serve the U.S. market.

Third, Monterrey has both a small but highly educated workforce and a huge reserve labor force of precarious workers, both of which are necessary to staff the new Tesla factory. The burguesía regiomontana has created pro-corporate public and private universities in the city that produce a segment of the workforce with high levels of engineering and technological know-how. Yet despite Monterrey’s reputation as an industrial powerhouse, it also has  extremely high levels of economic inequality; the city’s Metropolitan Area has been described as one of the most unequal municipalities in Latin America. While the upscale area of San Pedro de los Garza García boasts the highest quality of life in Mexico, official reports from 2022 reveal that 34 percent of the population of the Metropolitan Area experience high levels of social deprivation and 20 percent live in conditions of poverty. In addition to a highly educated workforce, therefore, Tesla will have access to a large pool of impoverished workers that they can employ in low-wage assembly line jobs.

The most important driver behind the choice of Monterrey as the site of the new Tesla plant is the city’s ties to the pro-business union movement, known as “white unionism.” Created by the burguesía regiomontana to assist in the administration of labor conflicts rather than empower workers, these unions have operated for decades to guarantee low wages and suppress labor militancy for transnational corporations. Also referred to as “company unions,” they follow employers’ orders and decisions to the letter, enabling changes in the labor contract that solely benefit corporate interests. In an interview with The New York Times, Mexican labor law expert Kimberly Nolan explained, “the way you do business in Mexico is that contracts are bought and sold.” It is not surprising that Tesla would hone in on a site in which the white-union model prevents workers from organizing, which coincides with Elon Musk’s deeply anti-union record. Consider, for example, the hostility with which the company reacted to the unionization attempt at the New York Tesla factory in February of this year.

Tesla’s arrival in Mexico should not be celebrated as a sign of Mexico’s technological capacity, scientific know-how, and highly paid workforce, or lauded for its potential to enhance economic and social development. The installation of the new manufacturing plant in Monterrey will only reproduce Mexico’s longstanding role as an exporting enclave that caters to transnational corporations. Rather than serving to enhance quality of life for Mexican workers and families, this manufacturing structure serves the U.S. market, is dependent on imported technologies, and sustains forms of labor precarity that are reproduced by an alliance between private capital, the state, and pro-corporate unions.

Mateo Crossa is a research professor at Instituto Mora, Mexico City, and holds a Ph.D. in Development Studies (UAZ) and Latin American Studies (UNAM). His research interests focus mainly on the study of labor and the export manufacturing industry in Central America and Mexico through the lens of critical Latin American political economy.

Nina Ebner is a Postdoctoral Research Fellow at CEDUA, Colegio de México. She has a PhD in Geography from the University of British Columbia. Nina’s research interests lie at the intersection of feminist political economy, critical development, and border studies, focused on processes of labor devaluation in the U.S.-Mexico borderlands.

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