The Mexican government expressed regret at Ford's decision on Tuesday to scrap a new plant project in the country, following repeated criticism by US President- elect Donald Trump for shifting small-car production south of the US border.
The criticism, via Twitter, had come hours after Mr Trump threatened to impose a "big border tax" on made-in-Mexico cars by another US vehicle giant, General Motors.
Both moves raised questions about the future competitiveness of the US automotive industry and its implications for consumers.
It is also likely to cast a long shadow over a show in Detroit next week when top executives converge to show off their new car models, Agence France-Presse reported.
The Mexican peso, which has fallen since Mr Trump was elected president, dropped by 1.41 per cent against the greenback following Ford's announcement.
"The Mexican government regrets the decision of the Ford Motor Company to cancel the investment project in San Luis Potosi and it has assured the return by the company of any expenditures made by the state government to facilitate this investment," it said in a statement on Tuesday.
Economy Minister Ildefonso Guajardo said the government was notified by Ford about its decision to drop what would have been a US$1.6 billion (S$2.3 billion) investment only "minutes" before it was made public.
Ford said it would instead invest US$700 million over the next four years to expand its assembly plant in Michigan state to build electric and self-driving vehicles.
"We are encouraged by the pro-growth plans that President- elect Trump and the new Congress indicate they will pursue," Mr Mark Fields, Ford's chief executive, said at an event on Tuesday.
Ford has been a target of Mr Trump's criticism since last year's election campaign, when he singled the company out for planning to create jobs in Mexico instead of pushing employment in the US.
He has also pledged to tear up the North American Free Trade Agreement (Nafta) and Trans-Pacific Partnership for the loss of millions of US jobs. Mr Trump has found support in some quarters. Nine Democratic lawmakers told reporters on Tuesday that Nafta should be renegotiated with Canada and Mexico, The New York Times said.
But business lobbies such as the Business Roundtable have warned that US trading partners could retaliate against new tariffs, threatening key US markets. "Any significant tariff increase within the North American region would impact the auto industry greatly," Mr Christopher Wilson, deputy director of the Mexico Institute at the Wilson Centre think- tank, told Agence France-Presse.