By Daina Beth Solomon

MEXICO CITY (Reuters) -Mexico's Nuevo Leon state said on Thursday that Tesla was still planning to build a factory and that the government would spend more than $130 million on infrastructure to support construction, a day after CEO Elon Musk said he was hesitating on the project.

Tesla announced the planned factory in the northern Mexican state in March, without providing a timeline for construction.

Musk on Wednesday said he was still set on the site in the Santa Catarina municipality in northern Mexico, but that the timing was uncertain due to global economic factors, and construction likely would not begin until next year.

Mexico has touted the Tesla project, estimated to cost $5 billion, as proof the "nearshoring" trend is taking off as companies seek to move production away from Asia and set up operations closer to the United States.

After a fraught process for Tesla to confirm its Mexico plans, investors are closely watching the automaker's next steps in the country.

Santa Catarina's Mayor, Jesus Nava, said local officials were beginning to improve infrastructure in the area where Tesla is set to build the factory.

"At the state and municipal level, we're moving ahead with studies for the infrastructure requested by Tesla, which will amount to more than 2.5 billion pesos ($136.46 million) provided by the state," he said in a statement.

"We hope in the first half of 2024 to have the start of Tesla's construction."

Musk on Wednesday said the company was "laying the groundwork to begin construction" in Mexico but did not yet have more definite plans.

"The question is really just one of timing ... we think we'll start the initial phases of construction next year," Musk said, citing concerns over high interest rates affecting affordability for car buyers.

Tesla suppliers looking to expand in Mexico are likely to keep moving ahead, even as they follow the EV maker's plans closely, said Jay Truesdale, CEO of risk and business advisory firm Veracity Worldwide.

"They're making a 30-year bet, not a three-year bet," he said. "Even if your desired end customer is not fully up and running, you're going to be producing things that will have a global demand."

Nuevo Leon Governor Samuel Garcia, who on Wednesday during a visit to Shanghai announced nearly $1 billion in expected investments from Chinese Tesla suppliers, could not be reached for comment.

His office said Musk and Nuevo Leon officials spoke by phone this week to discuss the project.

($1 = 18.3205 Mexican pesos)

(Reporting by Daina Beth Solomon; Editing by Jamie Freed)