Tesla could hit second gear with Shanghai factory

24 October, 2017, 01:09 | Author: Barbara Daniel
  • Robots assemble Model S Tesla’s 5.3-million-square-foot plant in Fremont CA. Source David Butow  For The Times

"While we expect most of our production to remain in the USA, we do need to establish local factories to ensure affordability for the markets they serve". What was not known until now is that Tesla will be the sole owner of the factory. - China's largest maker of electric cars - for market dominance, according to Bloomberg Intelligence. Meanwhile, any cars shipped to the U.S. from the Shanghai factory would face a 25% tariff. Reluctance to share tech reportedly held the company back from starting a factory in the Asian country earlier, despite the size and potential for growth in the market.

Shanghai-based Tesla Model S owner Jason Man verified with Teslarati that he was able to charge at the underground Supercharger station on Monday afternoon local time. The company is said to be in talks with the Shanghai government over the matter, with a deal expected to be reached by year's end. "The Shanghai government didn't reply to a request for comment". Perhaps it would be more accurate to say the factory will be Tesla's first factory in China.

As WSJ points out, Tesla is still working out the details of the agreement.

Of course, being allowed to operate in the country without a local partner would be an unprecedented step for China's free-trade zones. It was also encouraging EV makers to build factories by opening free-trade zones.

Foreign companies are usually required to set up joint ventures with local Chinese partners, which involves splitting profits and giving away some technology, though it avoids import tariffs.

This operation would be inside one of China's free-trade zones, said the people familiar with the situation, who have requested anonymity. Negotiating with the Chinese government is not going to be an easy task.

It could be that this deal Tesla has brokered removes the tariff somehow. However, it hasn't been easy because of the hoops that foreign carmakers have to go through to penetrate the market there, not to mention that it was "misled" by Chinese speculators.

China has identified new-energy vehicles as a strategic emerging industry and aims to boost annual sales of plug-in hybrids and fully electric cars 10-fold in the next decade.

China already has the most electric passenger vehicles in the world. Soon electric vehicles (EVs) may be cheaper than gas guzzlers.

If such a deal is in place to build a factory in Shanghai, it would assist Tesla greatly in lighting a fire under their efforts to become a large EV player in the Chinese market ... not that they're doing terribly shabby right now given the circumstances.

Tesla won't report third quarter earnings until next month, but the company reported record cash burn in the second quarter (though it did have about $3 billion of cash on hand)... Elon Musk, CEO of Tesla has set progressive goals of delivering 500,000 Model 3 every year. That clearly won't cut it for Tesla, which has wanted a deeper presence in China but also doesn't want to give up its fierce independence.

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