Tesla Secures Site in Shanghai for $2 Billion Gigafactory, its First Factory Outside the U.S.

author: Eric Walz   

Electric automaker Tesla has signed an agreement with the Shanghai government for a 860,000 square meter parcel of land where the electric automaker plans to build its first overseas Gigafactory, Tesla said in a Chinese social media post on Wednesday.

Tesla did not reveal the selling price for the plot. However, Reuters reported that the Shanghai Bureau of Planning and Land Resources said a 213 acre plot of land in Shanghai's eastern Lingang district had been sold at auction at a price of 973 million yuan ($140.51 million).

In July, Tesla signed an agreement with Shanghai authorities to build its first wholly-owned factory outside the United States, which would double the size of its global manufacturing and help lower the price tag of Tesla cars sold in the world's largest auto market.

"Securing this site in Shanghai, Tesla's first Gigafactory outside of the United States, is an important milestone for what will be our next advanced, sustainably developed manufacturing site," Robin Ren, Tesla's vice president of worldwide sales, said in a statement to Reuters.

The real estate transaction marks the first step for Tesla and its Chief Executive Elon Musk to build cars locally in China for the fast-growing market, even as tariffs imposed by Beijing on U.S.-made goods have caused Tesla to hike prices of its imported models.

China is a major market for Tesla, with sales in the country making up 17 percent of the company's revenue in 2017. However, the vehicle shipped from Tesla's California factory are subjected to a high import tariff, which adds nearly 30 percent to the sticker price for Tesla's Chinese customers. Building the cars locally will allow Tesla to sell its vehicles for a lower price and better compete with rival European automakers, such as BMW.

In May, Tesla announced it was cutting its vehicle prices in China after Beijing conceding from pressure from the Trump administration and announced it would cut tariffs on imported cars from 25 percent to 15 percent.

However, by July Beijing reversed course amid ongoing trade disputes with the Trump administration. Beijing responded by slapping an additional 25 percent tariff on cars imported from the U.S., raising the total tariff to 40 percent.

Tesla announced a price increase for its vehicles in China to offset the tariffs.The company raised the price of the Model X and S by about 20 percent in China, becoming the first automaker to raise prices in the world's largest automotive market in response to a U.S.-China trade war.

Earlier this month, Tesla announced record quarterly production but warned of major problems with selling cars in China due to new tariffs that would force it to accelerate investment in its factory in Shanghai.

Tesla's China Gigafactory will help the company to enter China's rapidly growing market for so-called new-energy vehicles (NEVs), a category for fully-electric cars and plug-in electric hybrid (PHEV) vehicles. The Chinese government is aiming for NEVs to make up 20 percent of all vehicle sales by 2025, in an effort to curb pollution in the country.

NEV sales were up 54.8 percent in September and climbed 81.1 percent in the first nine months of this year to 721,000 vehicles, the country's top automobile industry association said last week.

Tesla began hiring for the new Shanghai factory in August and previously said that it would raise capital from Asian debt markets to fund the plant's construction, which is estimated to be around $2 billion.

The Gigafactory will eventually have the annual capacity to produce 500,000 vehicles within the first decade of operation.

Eric Walz

Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.