Electric vehicle maker Tesla Inc. will build a major new plant in the northern Mexican city of Monterrey, President Andres Manuel Lopez Obrador said on Tuesday, dispelling concerns his government could block the deal over water shortages.

The news gives a boost to Mexico, which is seeking to benefit from geopolitical tensions by attracting investment and eroding Asia's dominant position in manufacturing industries.

Lopez Obrador said the two sides had reached agreement after a call with Tesla Chief Executive Elon Musk on Monday, following a separate conversation he said the two held late last week.

"This will represent a considerable investment and many, many jobs," Lopez Obrador told reporters, saying Elon Musk had been receptive to Mexico's concerns and accepted its proposals.

Speaking at a news conference, Lopez Obrador said Tesla would likely give more details of its plans on Wednesday.

The call between the two took place after Lopez Obrador had on Friday stirred fears that he could block the investment in Monterrey if water was scarce in the arid region.

The president said Mr Musk had understood the challenge posed by water scarcity in the region, and that the company would be making a series of commitments as part of the deal.

The discussions around Tesla have been a major test of how investors responded to Lopez Obrador's resource nationalism, which has persistently stirred misgivings among business groups.

Speculation about the prospect of Tesla going to Mexico has circulated for months, and the plant is set to become one of the major investments of the Lopez Obrador administration.