Morgan Stanley says Tesla’s move to new plant in Mexico is ‘critical’

Morgan Stanley says Tesla’s move to new plant in Mexico is ‘critical’

Morgan Stanley reiterated an Overweight rating and $220.00 price target on Tesla (NASDAQ:TSLA) after spending a week in Mexico meeting with corporates and policymakers. According to analysts, Tesla’s newest destination, Nuevo Leon Mexico, is critical to the company’s continuing efforts to diversify its supply chain. Tesla’s $5 billion initial investment can trigger industry concentration and infrastructure in Mexico over time.

Analysts wrote in a note, “We believe Tesla’s strategic move to open a new factory in the North of Mexico is an important part of the company’s manufacturing and supply chain strategy going forward given 1) proximity to its home market (the new factory is less than 7 hour drive from Giga Texas), 2) diversification from China (+ ability to capture IRA EV credits), 3) access to cheap and highly qualified labor, and 4) proximity to many of its suppliers that are already in the north of Mexico + many more that might relocate to the region because of Nearshoring. Infrastructure and political question marks linger, but we are encouraged by northern Mexico leadership’s focus on Nearshoring as a political strategy to make the necessary investments to circumvent these issues, something for which there already is a proven track record.”

Morgan Stanley’s discussions with investors and corporates suggest a political establishment that has been historically ambivalent towards the Nearshoring opportunity. Most decisions apparently occur on a “case by case” basis, subject to policymakers’ take on each individual project. However, from anecdotal conversations with corporate and government officials, the tide has started to turn.

Earlier this year, Mexico President Andres Manuel Lopez Obrador, U.S. President Biden and Canadian President Trudeau got together in Mexico City for the recurring North American Leaders’ Summit where analysts believe North American leadership highlighted the importance of re-shoring the supply chain off of China. Since then, the government has started to change its stance towards foreign companies.

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