Could The US Industrial Sector Keep Up With Tesla's Investment In Mexico?‍

Tesla's plans to build a major giga-factory in Mexico's north will further boost the country's growing manufacturing sector, putting more pressure on US industrial infrastructure.

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There is a $5 billion investment expected to go into this project, which will initially create 5,000 jobs, but the number of jobs is expected to double over the course of the project, which was announced by Mexican President Andrés Manuel Lopez Obrador last week and confirmed by Tesla the next day. This new factory site is expected to cover nearly 4,200 acres in a designated industrial zone in the border state of Nuevo Leon, almost twice the size of Tesla's existing factory in Texas.  The construction of the project is scheduled to begin in three months' time.

At present, Tesla is one of the most prolific contributors to greenfield foreign direct investment (FDI) in the world, and its projects are highly sought after by government investment promotion agencies throughout the world, as it is currently in the process of aggressive internationalization to meet its sales demands. The cache and amplifier effect that comes with a Tesla factory, along with the fact that jobs will be created as a result, has made it a prized possession. With Mexico set to become the third non-US location to receive a Tesla giga-factory, Berlin and Shanghai had been the only non-US locations to win giga-factories.

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Mexico's government said Tesla will build the world's biggest giga-factory, capable of producing 1 million vehicles per year, a third of its global production.

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Although the project is undeniably a good thing for Mexico and its FDI credentials – and a political win for Obrador as well – the project will also increase demand for industrial space along the border, raising questions about the US industrial sites' ability to handle the inflow of goods expected from Mexico as more companies like Tesla set up shop there.

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On the back of an increase in e-commerce activity and manufacturing output, the US is currently experiencing a general, significant increase in demand for industrial space. Throughout 2026, a survey conducted by real estate consultancy YardiMatric predicts that up to 370 million square feet of new space will be needed in the US to meet industrial demand, which is expected to total 1.8 billion square feet.

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A moment in the sun for Mexico's manufacturing industry is stoking further demand for its products. As a result of the disruptions caused by Covid-19, Mexico is enjoying a widescale reorganization of its supply chains, as companies burned by the disruptions look to minimize their reliance upon China, and as US companies relocate operations closer to home, a trend known as nearshoring, which means moving operations closer to home.  There has been an increase in activity across a number of nearshoring hotspots that have occurred at a far faster pace than the global average, according to data from Tradeshift, a cloud-based platform for supply chain payments and other transactions. Transaction volumes in Mexico and Canada, for example, have grown at the fastest rate in the world.

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There is a surge in new manufacturing facilities being built in Mexico, which in turn is fueling the development of new and expanded industrial space in border towns such as Laredo, El Paso, San Diego, Tijuana, and Tucson, resulting in a boom in new and expanded industrial space in Mexico.

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Mexico's industrial demand in 2022 will be dominated by nearshoring-related relocations and expansions, primarily concentrated in border areas such as Monterrey, Juarez, and Tijuana.

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Manufacturing in Mexico is also boosting manufacturing in the US, as components for medical devices and advanced equipment are made in Mexico and assembled at factories in the US.

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Several major logistic players and investors are focusing their efforts on developing warehouses along the border in Texas and California. Last year, ProLogis told Trade Algo that the demand for business in Mexico had reached its highest level ever. Currently, it owns nearly 44M SF of industrial space in Mexico, with occupancy levels that reached 98% in the fourth quarter of 2022 and it broke ground on 4M SF of new industrial space last year.

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Morgan Stanley has announced that it is investing in industrial developments that enclose nearly 2M square feet on the border with Mexico. According to a report published by Trade Algo, TPG, Clarion Partners, and CBRE are among the companies that are focusing on border investments in CRE.

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The question now is whether Mexico's manufacturing industry will continue to rise, resulting in an ever-increasing need for industrial space nearby as a result. Manufacturing activity in China is picking up again after the country's long-awaited relaxation of stringent Covid restrictions last month. The country recorded its highest manufacturing reading in more than a decade in February, suggesting it cannot be counted out as a manufacturing behemoth for the foreseeable future. Despite its numerous Covid-related challenges and the need for companies to hedge against an over-dependence on it, China remains one of the top global FDI destinations and is once again seeing rising inflows of FDI. 

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However, the nearshoring trend appears to be showing no signs of slowing down anytime soon. Reshoring and nearshoring are predicted to move up to 26% of world production within the next five years, according to projections by the McKinsey Global Institute. It is also clear that Tesla's decision to invest in Mexico for its largest non-US investment in years points to no slowdown in Mexico's manufacturing boom, as well as a continued scramble to develop industrial infrastructure to keep up with it.

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