US Battery Factory Plans Raise Questions for Mexican Demand

Tesla Motors recently announced it plans to construct a $5 billion lithium-ion battery factory in the southwestern region of the U.S. This type of battery is often used in electric cars, such as those Tesla manufactures, and for other similar applications.

Tesla's proposed move has implications for other manufacturers, and for other countries. Global graphite demand is expected to increase by 37 percent should Tesla go through with its plans, and many of the most productive graphite mines are not in the U.S. For example, Big North Graphite recently acquired the El Tejon flake graphite mine and mill in Oaxaca, Mexico. The mine has produced in the past and will be coming back online in the near future. There are other Mexican sources of graphite as well, which will likely experience more demand as time wears on.

Manufacturers of lithium-ion batteries and other technologies that depend on graphite have a significant incentive to remain in the North American market for production.

"North American producers can offer Tesla security of supply and they also have a meaningful transportation cost advantage over offshore suppliers," Greg Bowes, CEO and director of Northern Graphite, told Resource Investing News.

Within the North American market, producers have many choices about where to position their factories. Tesla clearly intends to produce in the U.S., but other companies must consider many factors in deciding where to establish themselves. Other countries offer much lower costs of labor and higher governmental incentives for economic activity such as manufacturing. One of the most favorable locations for new industrial ventures is Mexico, which has these benefits as well as an established tradition of U.S. and other companies offshoring to the country. Manufacturing in Mexico can be extremely beneficial for any company - and perhaps particularly for those that depend on supplies primarily located in North America.