Tuesday, 22 January, 2019

Sidestepping trade war, Musk breaks ground on Tesla Shanghai plant

Matthew DeBord  Business Insider Matthew DeBord Business Insider
Russell Knight | 08 January, 2019, 20:44

Tesla Inc said on Friday it plans to start delivering Model 3 cars to customers in China in March.

As a US -made vehicle, Tesla's cars in China have been subject to steep tariffs, and sales have suffered from the U.S.

Tesla has registered over 14,000 Model 3 VINs during the first eight days of January 2019.

Tesla has opened a tender process to build a $2 billion plant in Shanghai - dubbed a Gigafactory - and at least one contractor has started buying materials, Reuters reported earlier last month.

In China, the billionaire-entrepreneur faces a vehicle market that probably shrank previous year for the first time in at least two decades as uncertainties surrounding the trade fight between the world's two biggest economies, signs of weakening domestic demand and a stock-market slump take their toll on consumers.

The facility is expected to churn out about 250,000 vehicles annually in the first phase, and that capacity will double over time, the Shanghai government said in a statement Monday.

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 United States administration as trade tensions between the two countries escalated.

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The push into China comes amid simmering trade tensions between Beijing and Washington. China remains the world's largest market for vehicles, particularly green ones.

The country's auto market is expected to have shrunk previous year for the first time in decades but demand for electric vehicles remains strong. A key China PMI index fell below 50 in December to its lowest reading since May 2017, signaling weakening demand in the $12.2 trillion economy.

"We think with the resources here we can build the Shanghai Gigafactory in record time and we're looking forward to hopefully having some initial production of the Model 3 towards the end of this year and achieving volume production next year", Musk said at the ground breaking ceremony.

'Aiming to finish initial construction this summer, ' Musk tweeted.

China typically requires foreign automakers to set up joint ventures with domestic firms when establishing manufacturing plants, which entails the sharing of profits and technology with local partners.

Tesla plans to keep building the higher-end versions of the Model 3 at its plant in Fremont, California, and to make more affordable versions in China for that market and other parts of Asia.

Tesla has yet to give a price tag but the Shanghai government said it would be the biggest foreign investment there to date.

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