Tesla constructs Shanghai plant amid trade tensions

Ivan Schwartz
January 9, 2019

Tesla CEO Elon Musk says the automaker is breaking ground for a Shanghai factory and will start production of its Model 3 by the end of the year.

In July, Tesla raised the prices of the Model 3 and the Model Y by about 20 per cent in the mainland after Beijing slapped an additional 25 per cent tariff on American-made vehicles, a retaliatory measure against the U.S. administration as trade tensions between the two countries escalated.

Cheaper Model 3 versions will be produced in Shanghai for the Chinese market amid a pinched auto market and Chinese automakers such as BYD and Geely building their own electric vehicles.

The $5 billion investment comes at a tenuous time in relations between the USA and China. The U.S. Securities and Exchange Commission moved to punish Tesla previous year after his infamous "funding secured" tweet, with fines and a settlement that required corporate governance reforms.

A local Chinese plant could be crucial for Tesla, which is facing a drop in demand in the US, its biggest market, after reductions in federal tax credits for electric vehicles.

Tesla's first gigafactory opened outside Reno, Nev., in 2016.

"Over the last six years, we have opened 60 Tesla locations, almost 1,500 Superchargers, and more than 1,850 destination chargers in the country", the CEO Elon Musk said.

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China typically requires foreign automakers to forge joint ventures with domestic firms when establishing manufacturing plants, which means sharing profits and technology with local partners.

"Affordable cars must be made on same continent as customers", Musk said in another tweet.

According to a CNN report on Monday, Tesla is forging ahead in China "at a tricky time for both the company and the country".

"Tesla's own prices in China have fluctuated wildly, with the company slashing prices several times previous year even after China increased tariffs on imported United States vehicles", the report added. Apple triggered global equity losses last week when it said slackening Chinese demand spurred it to cut its revenue outlook for the first time in nearly two decades. According to Sina Finance, the company will focus on technical development, technical services, technical consultation, technology transfer in the field of electric vehicles, spare parts, batteries, and energy storage equipment, electric auto display, and product promotion.

Tesla (TSLA) bought the land for the factory outside Shanghai in October for $140 million.

Tesla signed a preliminary agreement with the Shanghai government a year ago to build the 500,000-unit factory in the Chinese city. Tesla's existing plant in Fremont, Calif., is ramping up to produce 500,000 annual capacity.

A previous version of this article stated that Tesla officially announced plans for the factory in July 2018.

Other reports by GizPress

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