Could Tesla’s electric vehicle factory in Monterrey be delayed?

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Tesla CEO Elon Musk said the company’s Gigafactory Mexico project is facing pressure from interest rates and the global economy.

During the company’s third-quarter earnings call with analysts Wednesday, Musk said the company is currently laying the groundwork for construction of the factory near Monterrey, Mexico.

In March, Tesla (NASDAQ: TSLA) announced plans to build a $5 billion assembly plant near Monterrey, where the company will produce a new line of electric vehicles. Musk previously said the EV plant would start production in 2025.

“For Mexico, we’re working on infrastructure and factory design in parallel with the engineering development of the new production [line] that we will be manufacturing there,” Musk said. “I think we want to just get a sense for what the global economy is like before we go full tilt on the Mexico factory. I’m worried about the high-interest rate environment that we’re in.”

Aiming to keep inflation under control, the Federal Reserve has raised interest rates 11 times since March 2022, from 0.25% to the current rate of 5.5%.

Musk said high U.S. interest rates are affecting vehicle sales across the country.

“For the vast majority of people buying a car, it’s about the monthly payment, and as interest rates rise, the proportion of that monthly payment that’s interest increases naturally,” Musk said. “If interest rates remain high, or if they go even higher, it’s that much harder for people to buy a car, they simply can’t afford it.”

Austin, Texas-based Tesla reported third-quarter total revenue of $23.4 billion, missing analysts’ estimates of $24.06 billion. The company also reported adjusted earnings per share of 66 cents, versus analysts’ estimates of 74 cents.

A Wells Fargo analyst asked Musk for clarification about Tesla not going “full tilt” on Gigafactory Mexico unless the economy is strong and whether the company could achieve its projected 50% compound annual growth rate without the plant.

“We’re definitely making the factory in Mexico. We feel very good about that, we put a lot of effort into looking at different locations and we feel very good about that location. And we’re going to build it and it’s going be great,” Musk said. “The pressure is really just about the timing …and I’m going to be a broken record on the financial front, it’s just that the interest rates have to come down.”

Musk said he still has “PTSD” from 2007-08 when Tesla was on the brink of financial collapse.

“I apologize if I’m perhaps more paranoid than I should be,” Musk said, “because that might also be the case because I am. I have PTSD from 2008 to 2017 through 2019 is not perfect either. That was very tough going. So you know, the auto industry is also sort of cyclic. It’s because people tend to hesitate to buy a new car if there’s uncertainty in the economy.”

Source: FreightWaves

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