Tesla Reaches Deal to Build Factory in China

Gwen Vasquez
October 23, 2017

Tesla declined Sunday to comment about the report.

The factory in Shanghai won't help Tesla gain control over the market, but instead it will help the company meet the demand in China, and hopefully make a bigger name for itself at the very cusp of the EV boom we are about to see in the area.

Foreign car-makers traditionally partner with local manufacturers, but that will reportedly not be the case with Tesla.

What's interesting about this deal is that Tesla will own the factory; typically, companies have to partner with a local manufacturer, but not Tesla.

The Wall Street Journal reported earlier that Tesla and the Shanghai government have reached a deal for a facility in the city's free-trade zone.

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. "While we expect most of our production to remain in the USA, we do need to establish local factories to ensure affordability for the markets they serve".

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Back in June, Tesla confirmed that it was in discussions with the Shanghai municipal government about the prospect of opening a local manufacturing facility to serve the Chinese market.

Robots assemble Model S Tesla's 5.3-million-square-foot plant in Fremont, CA.

Tesla will likely not avoid a 25 percent import tariff on its Chinese-made cars, but Bill Russo of Shanghai consulting firm Automobility told the paper it would still benefit by giving "Tesla a base from which to export to the region, while offering proximity to the Chinese supply chain, thereby lowering production costs and the sale price of Tesla cars sold there".

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

As the Verge notes, Tesla cars didn't sell well in 2014, but by 2016, sales in China had skyrocketed to more than $1 billion.

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