Mexican President Andres Manuel Lopez Obrador has announced that the electric car manufacturer Tesla will open a large plant in northern Mexico, marking an investment that could be worth up to $10bn for the region.

Following a phone call with Tesla Chief Executive Elon Musk on Tuesday, Lopez Obrador revealed that the plant would be located in the industrial hub of Monterrey, the capital of the northeast state of Nuevo León.

“This will represent a considerable investment and many, many jobs,” Lopez Obrador told reporters, adding that Musk had been “very receptive” towards concerns about issues like water use in the parched region.

Mexico has pitched itself as an alternative to Asia for US-based companies looking to establish manufacturing operations, citing proximity as an advantage. Tuesday’s decision, which has yet to be confirmed by Tesla, would represent a significant boost to those efforts.

Mexico is already home to one of the largest car manufacturing sectors in Latin America, second only to Brazil, hosting plants for US, European and Asian car companies.

The last year brought more foreign investment into the country than at any point in the last several years. The German manufacturer BMW announced earlier this month that it would invest about $870m to make electric cars in the Mexican state of San Luis Potosi.

And in a meeting with US and Mexican business executives in July 2022, Lopez Obrador boasted that US companies planned to invest $40bn through 2024.

Some investors have viewed Lopez Obrador with scepticism as he looks to extend state control over various sectors of the economy.

Lopez Obrador locked horns with US and Canada over an energy policy that would do just that, with the officials from the two countries arguing that the policy gives Mexican energy suppliers an unfair advantage over private companies. The dispute has yet to be resolved.

In a news conference, the Mexican president said that Tesla would likely offer more details about the new plant on Wednesday, when Musk is scheduled to speak during Tesla’s “Investor Day”.

Tuesday’s announcement is a reversal of course for Lopez Obrador, who had previously ruled out situating a Tesla plant in Nuevo León, citing water concerns.

The Mexican state had been forced to ration water after a drought emergency was declared in July, with Lopez Obrador calling the situation a “national security” issue.

But in Tuesday’s statement, Lopez Obrador sought to calm concerns about the arid state’s limited water resources, saying the new plant would use recycled water.

Some observers have also pointed out that the economic benefit of the Tesla plant could help Lopez Obrador’s Morena party as Mexico nears its 2024 presidential election. While Lopez Obrador himself is limited to a single term, his party remains a frontrunner in early presidential polls.

Gabriela Siller, a chief economist at Nuevo Leon-based Banco Base, estimated that the Tesla deal could bring up to $10bn in investments to Mexico. The president, she said, “could not turn this down. It would have had a very big political cost for him.”