Tesla to build new EV factory in Shanghai

Tuesday, 24 Oct, 2017

As Tesla tries to reach Elon Musk's goal of producing 500,000 electric cars annually by the end of 2018, the company needs to expand its ability to actually build those vehicles.

China levies a 25% duty on sales of imported vehicles and has not allowed foreign automakers to establish wholly owned factories in the country, though it has moved to revise the rules for companies promising to build electric vehicles in China.

Tesla's share of the Chinese electric auto market is already approaching 10%, by far the largest of any foreign automaker, and in 2016 its total China sales surpassed $1 billion.

However, Beijing has considered allowing foreign automakers to set up wholly-owned factories in free-trade zones, in part to encourage more production of electric and hybrid automobiles.

The company entered into a preliminary deal with the municipal government of Shanghai that would give the automaker ownership of its manufacturing facility, said two people who are familiar with the dealings.

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"Tesla is deeply committed to the Chinese market, and we continue to evaluate potential manufacturing sites around the globe to serve the local markets", the company said in a statement at the time. It was also encouraging EV makers to build factories by opening free-trade zones. "Whatever deal Tesla gets, others will want it too".

Persuading Tesla to manufacture cars within Shanghai, while at the same time pay tariffs on the same, would be a big coup for the government.

By working with local suppliers and making products close to its end customers in the region, Tesla could significantly reduce supply chain logistics costs and delivery costs.

However, it would allow Tesla to maintain control of profits and crucially its electric auto technology and manufacturing processes, without the worry that proprietary information could leak out into Chinese industry.

Tesla is brawling with production problems at its main factory in Fremont, California. Previous year in China more than half a million new-energy cars were sold.