JULIO CESAR AGUILAR/AFP via Getty Images
President-elect Donald Trump's pledge to impose sweeping tariffs on Mexico could be a problem for Tesla, whose CEO is one of Trump's most vocal supporters.
Trump's threat to impose a 25% tariff on goods from the country has put a $10 billion new factory proposed by Elon Musk in limbo.
Tesla announced in March 2023 that it was planning to build a gigafactory near the industrial hub of Monterrey, Mexico.
The project has since been hit by delays and uncertainty, with Musk telling investors earlier this year that it was on pause until the election outcome was clear.
AP Photo/Alex Brandon
"Trump has said that he will put heavy tariffs on vehicles produced in Mexico, so it doesn't make sense to invest a lot in Mexico if that is going to be the case," the Tesla CEO said in July.
Musk backed Trump's election campaign and has since been given a role in his administration targeting wasteful government spending.
Trump announced his new planned tariffs on Truth Social on Monday. It marks an escalation of the 60% tariff on goods from China and a 10% to 20% tariff on goods from other countries he proposed on the campaign trail. He also floated imposing tariffs of 200% or more on vehicles imported from Mexico during the election campaign.
The Mexican peso fell over 1% against the dollar on Tuesday following Trump's post.
The world's richest person praised Trump's proposed tariffs on Mexico and China in an X post on Monday, saying the threat of tariffs would be "highly effective."
He was responding to a post by Bill Ackman, the hedge fund manager and Trump supporter, who said the tariffs "will not be implemented, or if implemented will be removed, once Mexico and Canada stop the flow of illegal immigrants and fentanyl into the U.S."
Trump's victory has pushed Tesla's planned factory even further into purgatory. Days after the election, Mexico's economy minister said he planned to set up a meeting with Musk to clarify what was happening.
During the campaign, Trump vowed to clamp down on automakers building cars in Mexico. The prospect of new tariffs could force US automakers such as Tesla to make some hard choices about operational or planned factories in Mexico.
Investment bank UBS warned that any tariffs on Mexico would be "highly disruptive" to the entire US automotive industry, in an analyst note released after the election. Analysts told BI that tariffs would deter automakers such as Tesla from investing south of the border.
"Everything's up in the air with Tesla's plant," Sam Fiorani of AutoForecast Solutions said, adding that tariffs "could complicate the investment in Mexico."
Fiorani told BI that factories in Mexico were crucial for US manufacturers — particularly the Detroit "Big Three" of Ford, General Motors, and Jeep owner Stellantis — because it offered cheap parts and labor.
GM and Stellantis have around a third of their full-size pickup truck production in Mexico, according to Morningstar analyst David Whiston, while Ford builds its Maverick compact pickup there.
Mexico is also a crucial production hub for Ford's Mustang Mach-E EV, built at the company's Cuautitlan plant.
The country's free trade agreement with the United States, which allows automakers to import vehicles across the border without duties and is up for review in 2026, has attracted other automakers outside the Big Three.
Scott Olson/Getty Images
Toyota, the world's largest carmaker, announced in 2020 that it would move production of its Tacoma pick-up from the US to Mexico. Nissan and Volkswagen also have factories in the country.
Mexico has also attracted interest from Chinese automakers, sparking fears from some lawmakers that they could use the country as a "backdoor" to the US market.
Chinese EV giants BYD and MG, a brand owned by SAIC, have both announced plans to build factories in Mexico.
In September BYD denied reports that it put those plans on hold to wait out the election result.
BYD Americas head Stella Li told Reuters that Mexico was a "very relevant" market because the plant would make cars for the local market rather than export.
Some Mexican officials fear a BYD plant could provoke the new Trump administration, The Wall Street Journal reported.
Other automakers have expanded their presence in Mexico, despite the prospect of tariffs under a second Trump term.
Jeep is building its first EV, the Wagoneer S, at its Toluca plant in Mexico, per a breakdown of the company's 2024 manufacturing operations.
The CEO of Chrysler, another Stellantis brand, also recently confirmed it was expanding a factory in Mexico as a "relief valve" for US truck production after the Journal reported the company was considering making its bestselling Ram 1500 truck south of the border.
Germany's BMW, meanwhile, is investing 800 million euros ($861 million) in expanding its factory at San Luis Potosí, Mexico. It's expected to make the company's latest range from 2027.
"Imposing tariffs would be a deterrent. It would make it difficult if you're planning on exporting to the US," Stephanie Brinley, an automotive analyst at S&P Global, told BI. "It makes building a plant in Mexico more expensive and less attractive."
Brinley added that many automakers with a significant US presence had been operating in Mexico for decades, meaning it would be expensive as well as highly difficult to shift production in response to tariffs.
Alanis King
"That would be a massive investment issue ... it would probably require a staggering amount of money and would not be something they could do quickly. Changing that manufacturing footprint would take at least five years," she said.
Ultimately, Brinley said many US automakers may decide it's in their best interests to stay put, despite the tariffs — something that she said could lead to higher prices for Americans.
"That's where the tariff ends up hurting the consumer, because these companies are not going to just eat the tariff. Some, if not all of the cost would be passed on to consumers," Brinley said.
Tesla, GM, Ford, and Stellantis did not respond to requests for comment from BI.
