Tesla speeds up China push with 2019 Shanghai production goal

A government announcement of a land request at the site slated for Tesla's factory in Shanghai. The notice, posted on July 16, gave farmers till Sept 18 to vacate the land.
A government announcement of a land request at the site slated for Tesla's factory in Shanghai. The notice, posted on July 16, gave farmers till Sept 18 to vacate the land.PHOTO: REUTERS

US electric carmaker's first overseas plant will let it avoid risks linked with importing vehicles, like higher tariffs

SHANGHAI • Tesla plans to start production in China in the second half of next year, the city of Shanghai said, as the US electric carmaker advances its push in the world's largest auto market.

Shanghai Mayor Ying Yong has visited the project site in the Lingang development zone in the south-east and encouraged Tesla to accelerate construction, according to a statement on the city's WeChat social media account yesterday.

The plant, dubbed Gigafactory 3, will be the biggest foreign-invested manufacturing project in Shanghai. A Tesla representative did not have an immediate comment.

The Palo Alto, California-based company has secured more than 81ha of land for the China factory, which is expected to cost several billion dollars to build.

Tesla's first overseas plant will help the electric carmaker avoid some of the risks involved with importing vehicles, such as higher tariffs caused by the trade tensions between China and the US.

While China is Tesla's biggest market after the United States, volumes in the country have been limited because the company has had to rely on imports.

The 40 per cent duty that China levies on cars brought from the US has had an impact on sales, the company said when reporting third-quarter earnings in October.

The tariff has left Tesla's models at a pricing disadvantage against local electric car rivals such as BYD, while new Chinese entrants including NIO and Xpeng Motors are also racing to win over customers before Tesla starts its full-scale push in the country.

At the same time, the Chinese car market is headed for its first drop in at least two decades as economic headwinds, the trade war with the US and slumping stock prices weigh on consumers' appetite to buy new vehicles.

New-energy vehicles - which include battery-powered, plug-in hybrid and fuel-cell cars - are bucking the trend.

Sales of these models reached 777,000 units last year and could surpass one million for this year, according to the China Association of Automobile Manufacturers. The government's target is seven million vehicles a year by 2025.

Tesla CEO Elon Musk said in October that the company was striving to start production of its Model 3 vehicle in China next year. The company has also started to advertise for employees for the new facility.

The Shanghai authorities are helping Tesla obtain loans from some of the biggest Chinese banks to fund the new plant, people familiar with the matter said in August. Tesla may borrow about US$1.3 billion (S$1.8 billion) locally for the facility, RBC Capital Markets analyst Joe Spak said last month.

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A version of this article appeared in the print edition of The Straits Times on December 07, 2018, with the headline 'Tesla speeds up China push with 2019 Shanghai production goal'. Print Edition | Subscribe