Tesla is one of the world’s most coveted foreign investors. Everywhere it sets up its so-called ‘gigafactories’, it promises billions of dollars in investment, thousands of jobs and the lustre of its worldwide revered brand. And yet, something more elemental took centre stage ahead of its decision to build a new $10bn gigafactory in Monterrey, in the north-eastern Mexican state of Nuevo Leon: water.
Something more elemental took centre stage ahead of [Tesla's] decision to build a new $10bn gigafactory in Monterrey, in the north-eastern Mexican state of Nuevo Leon: water.
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Monterrey, Mexico’s second-largest city, has been dealing with extreme water stress for years: risk consultancy Verisk Maplecroft considers the city of ‘extreme’ risk and places it among the 10 most water-stressed cities in the country. Its water issues have been caused by two main factors: fast-growing demand from a burgeoning city population of more than 5.3 million and the fact that the city is fed by a shrinking supply due to flagging levels of rainfall, particularly during summer months. The crisis reached a new climax last year, when authorities rationed potable water between March and August.
Big industrial and agriculture investors, who according to some estimates account for around half of the city’s total water use, have expectedly come under scrutiny — both existing investors as well as prospective ones, including the mighty Tesla.
“If there is no water, we will not issue the permits,” Mexican president Andrés Manuel López Obrador (Amlo), said on February 24. Those who saw this as a last-minute manoeuvre to strike a better deal proved prescient. Only a few days later, on February 28, he confirmed the investment.
If there is no water, we will not issue the permits.
However, the fact that Amlo used water security as a bargaining chip speaks volumes about the pivotal role it has come to play in today’s site selection decisions.
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People in Nuevo Leon have reasons to cheer. First, common sense dictates that Tesla would not sink as much as $10bn in Monterrey if it did not believe it had secure access to a stable water supply.
Second, Amlo’s posturing bore fruit. The company committed to meeting 100% of its needs with treated wastewater. The facility is expected to drink about 80 litres per second (l/s) of treated water. An existing treatment plant next door can provide 250l/s, at least on paper, because the distribution infrastructure has yet to reach the area of Gigafactory Monterrey.
Besides, Tesla is on a mission to challenge peak narratives. Take critical minerals, for example, the shortage of which is concerning for policymakers in the West. During its investor day held on March 1, Tesla CEO Elon Musk argued that the amount of proven reserves of critical minerals is actually going up because miners have stronger price incentives to scour the world looking for new deposits.
Water may well be a similar story. In 2022, the UN estimated that groundwater accounts for 99% of all liquid fresh water on Earth. It is no surprise that manufacturers are directly looking for new groundwater sources. Heineken, one of Monterrey’s biggest water users, is drilling a 350m-deep water well to secure new supplies. Elsewhere, Tesla itself is reportedly drilling for new groundwater beneath Gigafactory Berlin.
In 2022, the UN estimated that groundwater accounts for 99% of all liquid fresh water on Earth.
All things being equal, though, “the risks of water stress are set to increase,” argues Will Nichols, Verisk Maplecroft’s head of climate and resilience. “With a growing population and the current trajectory of global heating, adding water-intensive industries to the mix will only compound the drain on water resources.”
The problem is not limited to Monterrey. Water shortages leave the whole of Mexico in a bind. The country has reaped great benefit from the US’s friendshoring push, but droughts and overexploitation are depleting existing water reserves and causing major land subsidence problems in the capital, Mexico City, which is sinking at a rate of 50cm per year. Growing investment levels are thus exacerbating tensions between competing water uses.
Inevitably, water security will remain front and centre of site selection conversations moving forward, in Mexico as elsewhere. Water is currently being rationed in Barcelona, Taiwan and beyond because of droughts and extreme dry weather. Major foreign investors, like Tesla, have a chance to unleash their innovation to become part of the solution, drive water efficiency gains and secure new groundwater sources.
It may sound less captivating than a cybertruck, but it can prove way more disruptive.