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Tesla to Build China Factory to Produce 500,000 Vehicles Annually

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【Summary】Tesla CEO Elon Musk has secured a deal with Chinese authorities to build a vehicle assembly plant in Shanghai, its first factory outside the United States. The new factory will eventually increase Tesla’s total vehicle output by 50 percent.

Eric Walz    Jul 10, 2018 7:00 PM PT
Tesla to Build China Factory to Produce 500,000 Vehicles Annually
author: Eric Walz   

Tesla CEO Elon Musk has secured a deal with Chinese authorities to built a vehicle assembly plant in Shanghai, its first factory outside the United States. The new factory will eventually increase Tesla's total vehicle output by 50 percent. The announcement comes hours before President Trump announced plans to impose another $200 billion in tariffs on Chinese goods.

Construction of the new plant is expected to take two years, and Tesla will produce the first batch of cars shortly after. Tesla plans to increase production at the new factory to 500,000 vehicles annually about three years after the assembly line is operational, the company said.

The Shanghai government suggested it may help Tesla with some of the capital costs to build the facility.

"The Shanghai municipal government will fully support the construction of the Tesla factory," its statement said.

Tesla said Tuesday's announcement will not impact its U.S. manufacturing operations–a factory in Fremont, California where Tesla currently builds all of its vehicles.

Last weekend, Tesla raised the prices for its electric cars in China by around 20 percent to offset the cost of new tariffs imposed by the China's own government in retaliation for U.S. President Donald Trump's higher duties on Chinese made goods.

The Shanghai government said in a statement that it welcomed Tesla's move to invest not only in a new factory in the city, a center of the Chinese auto industry, but in research and development in electric vehicle technology.

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Shanghai Mayor Ying Yong and Tesla CEO Elon Musk shake hands after the deal was announced

Musk has been seeking to build a Chinese factory since at least 2016, well before the Trump administration proposed tariffs on Chinese goods.

The Chinese market is attractive to U.S. automakers. Nearly 25 million passengers vehicles were sold there in 2017. In addition, China is the world's largest market for electric vehicles, which Tesla produces.

The China EV market is expected to grow even larger, as the Chinese Government plans to phase out fossil-fueled vehicles and replace them with fully-electric and plug-in-hybrid models by 2030.

Detroit-based General Motors currently has ten joint ventures in the country, as well as wholly owned foreign enterprises, which employ more than 58,000 people. GM's China models are sold under the Buick, Cadillac, Chevrolet, Baojun, Wuling and Jiefang nameplates. GM sold over 4 million vehicles in China for the first time ever in 2017.

Tesla has been in negotiations to open its own factory in China to help bolster its position in the country's fast-growing market for electric cars and to avoid high import tariffs. The company recently revealed that their sales in China doubled in 2017, surpassing $2 billion.

Tesla raised the prices of its vehicles in China around 20 percent last weekend in the wake of mounting trade conflicts between the Trump administration and Beijing, which resulted in China retaliatory tariffs of 25 percent on U.S auto imports.

Musk had previously criticized China's tough auto rules for foreign businesses, which would have required it set up a 50/50 joint venture with a Chinese partner in order to build cars there.

However, in April, China announced that it planned to scrap the so called ‘50-50 rule on capping foreign ownership of new-energy vehicle (NEV) ventures. Shortly afterwards, Tesla registered a new electric car firm in Shanghai.

"The Shanghai plant will certainly improve Tesla's positioning in China and allow it to locally produce and avoid import tariffs. The relaxation of the 50/50 rule for JVs in China uniquely benefits Tesla because they did not have an existing JV in China" as rivals do, Tasha Keeney, an analyst with ARK Invest told Reuters.

The Tesla brand is popular in China, and building its vehicles there makes sense for the electric carmakers. Tesla is investing heavily into charging infrastructure to support the growing number of Tesla vehicles on China's roads. Tesla China says it has already built more than 1,000 fast-charging stations as well as 2,000 destination charging stations to make charging more convenient for its Chinese customers.


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