Mexico received USD 36.9 billion in FDI in 2024 — the highest level in its history — and 54% of that flow went to manufacturing. At the same time, manufacturing GDP growth fell to –1.5% in the third quarter of 2025.

Those two figures together describe the core problem facing any foreign company evaluating manufacturing operations in Mexico today: the structural opportunity is real, but the operating environment is materially harder than it was in 2022, when the nearshoring narrative was at peak enthusiasm.

This article does not explain why Mexico “has potential.” It explains what has changed, what real costs you need to budget for, and which warning signs went largely unnoticed in the analyses of the past three years.

Market size — and why FDI figures mislead without context

Manufacturing accounts for 21.4% of Mexico’s nominal GDP — an estimated USD 364 billion in output for 2024 (Safeguard Global) — and generates 89.7% of the country’s total exports. Mexico surpassed China as the top supplier of goods to the United States in 2023, with U.S. imports from Mexico reaching USD 475 billion. Those figures are verifiable and not inflated.

What does require context is the composition of that record FDI. Of the 2024 total, 77.9% came from profit reinvestment by companies already operating in the country, and only 8.6% — USD 3.17 billion — were new greenfield investments. The Dallas Fed documented in December 2024 that much of the increase in bilateral trade reflects trade diversion rather than productive capital relocation. Only 12.9% of Mexican companies with more than 100 employees reported increases attributable to nearshoring in Banxico’s Business Perception Survey (2024). The gap between the narrative and the evidence matters for any company calibrating how much supply chain demand actually exists for a new operation.

The cost structure: what to budget before signing any contract

The all-in labor cost for an entry-level manufacturing operator in Mexico sits at USD 5.56 per hour — including IMSS, Infonavit, SAR, state payroll tax, and severance provisions — compared to USD 6.50–7.50 in China and USD 27–30 in the United States (Tetakawi, April 2026). That advantage is real. What often goes missing from entry financial models is that the general minimum wage has risen more than 100% since 2018, and that the constitutional reform reducing the workweek from 48 to 40 hours — with phased implementation between 2027 and 2030 — implies an additional estimated increase of 10–20% on current manufacturing payroll costs (BCG, 2024).

The table below summarizes the operating costs that vary most and are most frequently underestimated in entry projections:

Industrial rents rose between 39% and 50% since 2022. In markets like Tijuana and Monterrey, the real bottleneck is not space availability but guaranteed power supply: 91% of industrial parks surveyed by BBVA-AMPIP in 2023 reported electricity supply problems.

The three risks nearshoring analyses tend to underweight

The energy risk is structural, not transitory. The Electricity Sector Law published in March 2025 consolidated CFE as the operator with a minimum 54% share of generation and eliminated the CRE as an independent regulator. For energy-intensive manufacturing, Mexico’s average industrial electricity price — roughly USD 0.13–0.18/kWh — is higher than Texas (~USD 0.06/kWh). On-site self-generation remains viable for facilities below 0.7 MW without an additional permit, but surplus power can only be sold back to CFE. Any company planning to operate with its own renewable energy source must review this framework before sizing its investment.

The water risk is geographically concentrated but severe. 70% of Mexico’s territory faces water stress according to PUEC-UNAM, and 80% of aquifers are at historically low levels (CONAGUA). Nuevo León — the primary nearshoring destination — experienced its worst water crisis in three decades in 2022. Water availability does not appear in industrial park brochures with the same prominence as highway or rail access, yet it has blocked operating permits in at least three municipalities along the Monterrey–Saltillo corridor in the past 18 months. Verifying the water concession before committing to a lease is not a minor administrative step.

The legal risk from the judicial reform deserves a careful read. The constitutional reform of September 2024 makes Mexico the only country in the world that elects its entire judiciary by popular vote. The first election of approximately 2,700 judges took place on June 1, 2025. Moody’s warned this would be “particularly damaging for future nearshoring investments.” The concrete concern for manufacturing companies is not abstract: contract enforcement, labor dispute resolution, and investment protection against regulatory non-compliance all depend on the institutional integrity of the judicial system. This does not invalidate entry, but it does change how contracts with local suppliers and distributors should be structured.

Active incentives: what you can use and what demands ongoing compliance

The IMMEX program — with more than 5,000 active operations and over 3 million workers — remains the cornerstone of any structure for export-oriented manufacturing. It allows temporary duty-free importation of raw materials for up to 18 months, and capital equipment indefinitely. With the additional VAT/IEPS Certification, the tax credit covers 100% of VAT on temporary imports. Registration with the Secretaría de Economía takes between 15 and 20 business days at no cost.

The Plan México Decree (published January 21, 2025) extends accelerated depreciation incentives — between 41% and 91% depending on asset type — to all industrial sectors acquiring new fixed assets before September 2030. The assigned budget is MXN 30 billion.

For companies considering northern border municipalities, the reduced corporate income tax rate of 20% (versus the standard 30%) and VAT at 8% (versus 16%) apply across 43 municipalities in six states. This incentive was renewed by the Sheinbaum administration in December 2024.

What demands active attention is the 2021 subcontracting reform (DOF April 23, 2021), which prohibits personnel outsourcing and limits subcontracting to specialized services registered in the REPSE system. Companies using service providers without a valid registration can face penalties of up to 50,000 UMAs — approximately MXN 5.4 million in 2025 — as well as joint liability for social security obligations. This is one of the primary sources of contingent liability for foreign companies that launch operations with flexible workforce models.

What type of operation has the best conditions to compete in manufacturing in Mexico today

The T-MEC/USMCA renegotiation scheduled for 2026 defines the minimum relevance threshold for any entry analysis. Approximately 50% of Mexico’s exports to the U.S. currently meet USMCA rules of origin and qualify for 0% tariff; those that do not face the 25% general tariff already in effect on automobiles, steel, and aluminum. An operation designed without accounting for required regional content can lose its entire competitive advantage in 2026 without any additional regulatory change.

Operations best positioned to absorb the current environment share specific characteristics: they operate in sectors with high T-MEC content that cannot be replicated from Asia in the short term — automotive, aerospace, medical devices, export electronics; they locate in industrial parks with confirmed electrical and water capacity before signing any contract; they budget payroll with minimum annual increases of 12–15%; and they structure their operation under IMMEX from day one, taking advantage of the Plan México accelerated depreciation while it remains in force.

The question that determines whether Mexico is the right decision is not whether the market is attractive — capital flows demonstrate that it is, for those already installed. The real question is whether your company can operate within a regulatory framework that changes frequently, a judicial system in transition, and infrastructure constraints that require active management. The companies that have struggled are not the ones that chose Mexico: they are the ones that overestimated the predictability of the environment and underestimated the cost of navigating it without local structure.