Musk says Tesla's Mexico factory on pause over Trump's tariff pledge

Tesla CEO Elon Musk said Tuesday during the electric vehicle maker's earnings call that the company's plans to build a new gigafactory in Mexico are on pause until after the U.S. presidential election due to former President Trump's pledge to slap tariffs on cars made in Mexico.

After his opening remarks, Musk was asked for an update on the status of Tesla's plan to build its Gigafactory Mexico plant near Monterrey, which was announced in February of 2023.

"We're currently on pause on Giga Mexico," Musk replied. "I think we need to see just where things stand after the election."

"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. So we will kind of need to see how things play out politically," Musk explained.

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Tesla hasn't announced which vehicles or products it plans to produce at the Mexico factory, but Musk noted that the company is accounting for the pause by increasing production capacity at existing factories — including for the forthcoming Robotaxi and its Optimus robots.

"However, we are increasing capacity at our existing factories quite significantly, and I should say that the Robotaxi will get produced here at our headquarters at Giga Texas, as will Optimus towards the end of next year for Optimus production version two — the high-volume version of Optimus will also be produced here in Texas," he added.

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Former President Trump said in a March campaign speech that he would impose a 100% tariff on vehicles made by Chinese auto companies in Mexico to be imported into the U.S. He said at the time, "We're going to put a 100% tariff on every single car that comes across the line, and you're not going to be able to sell those guys if I get elected."

He reiterated some of that stance during his speech last week at the Republican National Convention. 

Musk's uncertainty about the potential scale and application of tariffs to U.S. automakers building cars in Mexico comes at a time when no Chinese automakers have major production facilities in Mexico — although at least one has considered building manufacturing capacity in the country as a means of gaining a foothold in the North American market.

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BYD, a low-cost EV maker that doesn't currently sell cars in the U.S. but has been engaged in a price war with Tesla in markets like China, has explored building a factory in Mexico. The company told Reuters in May that it plans to select a location in Mexico by the end of 2024.

Former President Trump's first term in office saw extensive trade negotiations with Mexico as well as Canada related to the auto manufacturing industry after he withdrew from the North American Free Trade Agreement (NAFTA) and renegotiated a new trade pact between the countries.

NAFTA with the United States-Mexico-Canada Agreement (USMCA). Under the terms of the USMCA, 75% of automobile components are required to be manufactured in the U.S. to avoid tariffs — an increase from the 62.5% threshold under NAFTA.

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The USMCA also included new requirements that at least 70% of an automaker's steel and aluminum purchases originate from North America and a labor value content (LVC) rule requiring that a percentage of qualifying vehicles must be produced by employees earning an average of at least $16 per hour.