México-Tesla Agreement: Mutually Beneficial Or One-Sided Arrangement? – Analysis

By Rubén Sierra

On March 1, 2023, México’s President Andres Lopéz Obrador confirmed an agreement with Tesla that allows the electric vehicle company to build the “biggest electric vehicle plant in the world.”^[1] The plant, or maquiladora, will be located in the border state of Nuevo León within the industrial hub of Monterrey, México.”^[2] 

The plant will specifically be located in the Santa Catarina municipality. The agreement is governed by the United States-México-Canada Agreement (USMCA), previously known as the North American Free Trade Agreement (NAFTA). The México-Tesla partnership was announced just 10 days after the Mexican president issued an executive order which expedited the nationalization of the country’s lithium reserves.^[3] This decree placed the raw material under the management of México’s Secretaría de Energía.^[4] Lithium is an essential component of electric vehicle batteries. In 2018, Méxican geologists in Sonora discovered, potentially, the largest lithium deposits in the world. Tesla’s CEO Elon Musk already has a partnership to mine some of México’s abundant lithium reserves in the Sonoran desert.

The recent developments appear to have mutual economic benefits for both México and Tesla. However, several issues have come to the forefront as a result of the manufacturing agreement. For example, environmental concerns, the negative reputation of maquiladoras related to rampant violations of workers’ rights, and Musk’s expressed support for the failed “lithium coup” in Bolivia raise serious questions.^[5] Is the México-Tesla agreement just another one-sided arrangement that favors U.S. corporations? Or, will the agreement have mutual benefits?

Tesla Joins Automakers in México. What does México gain? 

 Tesla joins a long list of automotive companies that already have plants in México. The companies include: “Audi, Baic Group, BMW, Stellantis, Ford, General Motors, Honda, Hyundai, Jac by Giant Motors, Kia, Mazda, Mercedes Benz, Nissan, Toyota, and Volkswagen.”^[6] These manufacturing plants make México “the world’s seventh-largest automaker and fifth-largest exporter of cars and light trucks.”^[7] However, nearly all of the cars manufactured in México are not sold to Mexican consumers. “90% of the cars” that are built in México “are exported, with 76% destined for the United States.”^[8] Tesla’s electric vehicle plant in Nuevo León will only be about 400 miles away from Tesla’s headquarters in Austin, Texas. Tesla is projected to produce 1 million electric vehicles per year at their new manufacturing center. Tesla purchased over 4,000 acres where construction will begin in just a few months.

So, what does México really gain? The Monterrey region is expected to experience significant job growth. The México-Tesla agreement includes an initial investment by Tesla of about $5 billion with the overall cost being “a total of $10 billion.”^[9] The construction of the plant is expected to create thousands of jobs in northern México. The Mayor of Santa Catarina, Jesús Nava, stated that 5,000 people will be hired during the initial stages of construction with a total of 10,000 jobs created by the end of construction.”^[10] In addition to job creation, México seeks to play a leading role in the electric vehicle industry. México’s Foreign Secretary Marcelo Ebrard stated that “it is a top priority to accelerate electromobility and the country’s energy transition” to electric power.^[11] But at what cost to México?

Tesla will Drastically Expand the Maquiladora Program in México

 Tesla’s new manufacturing plant will drastically contribute to the expansion of the maquiladoras in México. A maquiladora is a manufacturing plant “in México with the parent company’s administration facility” based “in the United States. Maquiladoras allow companies to capitalize on the less expensive labor [production] in Mexico.”^[12] The plants “operate under preferential tariff programs established and administered by the United States and México.”^[13] Initially through the North American Free Trade Agreement (NAFTA), which is now the United States-México-Canada Agreement (USMCA), corporations can take advantage of tariff-free imports. The tariff-free trade policies have disproportionately benefited large U.S. corporations and the U.S. government. For example, tariff-free maquiladorafactories produce “cheaply assemble[d] products” that are “export[ed] back into the United States.”^{[14 ]}The U.S. government is then able to generate tax revenue from its sales tax on consumer purchases. As mentioned, most of the goods are manufactured by U.S. companies in México and then sold in U.S. markets. Put simply, U.S. corporations are able to secure higher profits from tariff-free policies while the U.S. government is able to generate tax revenue. After nearly all of the manufacturing is completed in México, the Mexican government is unable to collect tax revenue from profits generated from the sale of the manufactured goods. Tax revenue would generally be used to fund public services like infrastructure, education, and healthcare.

The maquiladoras also have a long history of abuse and violations of workers’ rights. There have been numerous high-profile reports of workdays lasting 12 hours or more, women being subjected to pregnancy tests when they apply for jobs, and widespread accusations of forced labor.^[15] It is also widely recognized that owners and managers of U.S. manufacturing plants have engaged in full-fledged anti-union campaigns. These campaigns have illegally prevented workers from improving their working conditions through collective bargaining agreements. The management practices at the maquiladorashave been a significant concern of workers’ rights advocates for decades.

With the impending arrival of Tesla’s massive maquiladora in México, new causes of concern will arise. In 2021, Tesla was found guilty of violating U.S. federal labor laws. The company illegally fired an employee, “Richard Ortiz for protected union activity” and Musk was also found to have violated the National Labor Relations Act for intimidating workers by tweeting that if workers formed a union, they would have to give up their stock options.^[16] In February 2023, Tesla “fired more than 30 supporters of a […] union at its Buffalo facility, just days after the organizing efforts were announced.”^[17] The workers have filed a complaint with the National Labor Relations Board. Advocates of workers’ rights are concerned that Tesla’s engagement in open anti-union tactics will negatively contribute to the long history of labor violations at maquiladoras. Given these labor concerns, México’s President successfully advocated for the inclusion of labor provisions within the USMCA that seek to address the past abuses. These provisions raised the minimum wage to $16 per hour within the automotive industry and now requires maquiladoras to recognize collective bargaining rights.

The Expansion of the Maquiladora Program Coincides with AMLO’s Development Strategy 

The expansion of the maquiladora program by Tesla coincides with the Mexican President’s development strategy. President Andrés Manuel Lopéz Obrador (AMLO) has stated that he is “in favor of the maquiladora industry” because they serve as “centers for jobs” and generate about “3 millions jobs per year.”^[18] The Mexican President seeks to further promote manufacturing growth and job creation by expanding “industrial parks,” or maquiladoras, throughout México.^[19] The President hopes that his plan for economic growth will keep people from migrating.

President Obrador also intends to strengthen the maquiladora industry by modernizing Mexican ports, constructing the Tren Maya, and expanding the Ferrocarril Transístmico. Tren Maya is expected to connect “five states – Chiapas, Tabasco, Campeche, Yucatán, and Quintana Roo” which will transport people and cargo to manufacturing plants, among other places.^[20] The expansion of Ferrocarril Transístmico is expected to unite the Pacific coast of México with its Atlantic coast. Both railways will deliver more goods and labor to manufacturing plants throughout México. In addition, the Mexican government will continue to invest in modernizing their ports. For example, renovations will be made to ports in Chiapas, the Salina Cruz-Coatzacoalcos region, Guaymas, and Yucatán.^[21] The modernization process will expand the capacity of these ports to receive more containers with manufacturing goods that will be used at maquiladoras. Despite the positive outlook of AMLO’s development plan, Tesla’s maquiladora may cause further strain on México’s water resources.

Water Shortages in Nuevo León

Just weeks before the confirmation of the agreement between México and Tesla, the Mexican President expressed concerns related to water scarcity in the State of Nuevo León. President Obrador stated, “if there is no water, the permits will not be issued” because “the problem is that any big investment brings more population, more services, more water, roads, sewers, and public transportation.”^[22] The President had previously denied permits to brewery companies due to water shortages. Throughout 2022, Nuevo León faced an “acute water shortage” which resulted in the state rationing and restricting water usage by “water-intensive industries.””^[23] Tesla has responded to the water concerns by assuring Mexican officials that the company will rely on minimal water, recycled water, and the capturing of rain water.

Despite Tesla’s assurances, U.S. manufacturing plants have been found to misuse México’s water resources, pollute streams, leaving Mexican citizens with limited access to clean water. Given that Tesla’s plant will be the largest facility in the region, further strain on México’s water resources can be expected especially since construction will begin immediately. These activities may result in more water shortages in Nuevo León. Tesla’s current presence in México has already caused severe environmental issues about 1,000 miles west of Nuevo León, in the lithium-rich State of Sonora.

Tesla’s Lithium Mining in Sonora 

 Tesla’s electric vehicles (EVs) are powered by electricity that is stored in rechargeable batteries. The EV batteries are composed of metals such as cobalt, nickel, and, most importantly, lithium. In 2018, the Mexican Geological Service detected new lithium deposits in the State of Sonora with “reserves estimated at 243.8 million tons.”^[24] Lithium is the primary metal used to manufacture rechargeable batteries which is the main component in Tesla’s electric vehicles. The lithium in Sonora is already being “exploited by Bacanora Lithium company and Mexital Mining” which is a joint partnership with Tesla.^[25] The lithium mining has caused severe environmental issues that violate the provisions under the Sonora River Trust.

Alfonso Durazo, Governor of Sonora, “mentioned that a work team is preparing to resolve the commitments not met by Sonora River Trust to the population of Cananea and the surrounding towns that have suffered damage to their health, development and economy, after the spill of toxic acids caused by the […] mining consortium.”^[26] Several workers at the mines have also died due to hazardous working conditions. Tesla’s lithium mining activities have contributed to the toxification of the Sonoran River. Is the degradation of the environment expected to continue under Tesla’s new agreement? Overall, given the concerns related to the environment and labor standards, the biggest concern may be Elon Musk’s proven support for the destabilization of Bolivian society.

 Elon Musk Expressed Support for the Bolivian “Lithium Coup”

In 2020, Elon Musk expressed his support for the 2019 “Lithium Coup” in Bolivia. The coup forced President Evo Morales out of office, causing him to seek exile in México after he was threatened with police and military violence. The coup was, in part, in response to the Bolivian President’s nationalization efforts to fully control and protect the country’s lithium resources from foreign control. In “response to an accusation on twitter that the U.S. government organized a coup against President Evo Morales so that Musk could obtain Bolivia’s lithium,” Musk responded by tweeting, “We will coup whoever we want! Deal with it.”^[27] The coup caused severe political and social instability in Bolivia which brought the country to the verge of civil war.

Bolivia is recognized as the country with the largest lithium reserves in the world. Bolivia is estimated to have “21 million tonnes” and “holds about one quarter of the entire global resource” – including the world’s single-biggest lithium deposit, the Salar de Uyuni salt flat.”^[28] Bolivia is one of three Latin American countries of the “lithium triangle.” Argentina and Chile are known to have 17 million tonnes and 9 million tonnes, respectively. The “lithium triangle” comprises more than half of the world’s lithium. It is clear why Musk would want to have unrestrained access to Bolivia’s lithium resources even if it caused instability within Bolivian society.

Conclusion

Is the México-Tesla agreement just another one-sided arrangement that favors U.S. corporations? Or, will the agreement have mutual benefits? The México-Tesla agreement will result in the construction of the largest electric vehicle manufacturing plant in the world. Tesla will invest billions of dollars, creating thousands of jobs for Mexican workers. Tesla will be able to produce 1 million more electric vehicles per year. However, given the unfortunate history of maquiladoras in México, in addition to Tesla’s track record of anti-union activities, and Tesla’s current practices at México’s lithium mines, Tesla’s soon-to-be plant in Nuevo León raises serious concerns for workers and the environment. Also, the USMCA, previously known as NAFTA, has shown to primarily benefit U.S. corporations. Most concerning is that Elon Musk has publicly supported the overthrow of a Latin American government. Can Elon Musk be trusted to be a good faith partner who is respectful of a nation’s sovereignty of its natural resources? Only time will tell if the México-Tesla agreement will mutually benefit both parties or if it is just another one-sided arrangement.

*About the author: Ruben Sierra was a 2008 COHA Research Associate. In 2007, he studied Caribbean Literature and Music at the Casa de las Américas in Havana, Cuba. He has over 8 years of experience working with labor unions and non-profit organizations in California.

Source: This article was published by COHA

SOURCES

^[1] Reuters, Tesla plans gigafactory in first Mexico investment, March 1, 2023. 

^[2] Chris Ididore, Tesla to build next plant in Mexico | CNN Business, March 1, 2023.

^[3] Reuters, Mexico’s Lopez Obrador orders ministry to step up lithium nationalization, February 18, 2023. 

^[4] Ibid.

^[5] Vijay Prashad & Alejandro Bejarano, ‘We Will Coup Whoever We Want’: Elon Musk and the Overthrow of Democracy in Bolivia – CounterPunch.org, CounterPunch, July 29, 2020.

^[6] International Trade Administration, Mexico – Automotive Industry, September 23, 2022.

^[7] Anthony Harrup, Tesla to Build a Manufacturing Plant in Mexico – Wall Street Journal, February 28, 2023.

^[8] Chris Ididore, Tesla to build next plant in Mexico | CNN Business, March 1, 2023.

^[9] Daina Beth Solomon, Site of Tesla Mexico factory near double size of Texas plant, local official says |      Reuters, March 2, 2023.

^[10] Ibid.

^[11] Secretaría de Relaciones Exteriores, Foreign Secretary Marcelo Ebrard welcomes Tesla and BMW investments, says Mexico will accelerate EV production, Gobierno de México, March 3, 2023.

^[12] City of San Diego Economic Development Department, Maquiladoras/Twin Plants | Economic  Development | City of San Diego Official Website, (accessed on March 4, 2023).

^[13] Manufacturing in Mexico, What is maquiladora in Mexico – the history and success story | Manufacturing in Mexico (accessed on March 5, 2023).

^[14] CorpWatch. “Maquiladoras at a glance,” Maquiladoras at a Glance | corpwatch, June 30, 1999, (accessed on March 3, 2023).

^[15] CorpWatch. “Maquiladoras at a glance,” Maquiladoras at a Glance | corpwatch, June 30, 1999, (accessed on March 3, 2023).

^[16] Labor Tribune, Tesla found guilty of union busting – The Labor Tribune, April 19, 2021.

^[17] Chris Isidore, Tesla accused of firing union supporters days after organizing effort starts | CNN  Business, February 17, 2023.

^[18] México’s President Lopéz Obrador, Encuentro con las industrias maquiladora y manufacturera, desde Ciudad Juárez, Chihuahua, via Mexican President’s YouTube Channel.

^[19] Ibid.

^[20] México’s President Lopéz Obrador, Encuentro con las industrias maquiladora y manufacturera, desde Ciudad Juárez, Chihuahua, via Mexican President’s YouTube Channel.

^[21] Bnamericas, Spotlight: 6 port projects Mexico aims to complete by end-2024 – BNamericas, March 17, 2022.

^[22] Andreas Knoblock, Mexico and Tesla: Elon Musk wins dispute over Gigafactory – DW, Deutsche Welle,

March 2, 2023.

^[23] Ibid.

^[24] Prensa Latina, Mexico detects 14 new lithium deposits in Sonora, September 2, 2021. 

^[25] Prensa Latina, Mexico detects 14 new lithium deposits in Sonora, September 2, 2021. 

^[26] Ibid.

^[27] teleSUR English, Elon Musk Confesses to Lithium Coup in Bolivia | News, July 25, 2020. 

^[28] NS Energy, Top six countries with the largest lithium reserves in the world | NS Energy Business, November 19, 2020.