By on July 10, 2018

Tesla’s sole assembly plant in Fremont, California won’t be lonely for long. A preliminary deal reached between the automaker and the government of Shanghai could see a new assembly plant start production in about three years’ time. The Chinese plant would most likely build Model 3s and upcoming Model Y crossovers, Bloomberg reports.

Assuming Tesla can scrounge up the $4 to $5 billion needed to complete construction of the facility (a Goldman Sachs estimate), the plant could produce up to 500,000 vehicles per year. And it just so happens that Shanghai has a free trade zone.

This morning’s news was foreshadowed when a new Tesla subsidiary popped up in that city in May. Musk travelled to China on Tuesday, stopping near a cave in another country on the way.

Shanghai is an increasingly attractive target for foreign automakers, especially since the Trump administration launched a series of trade tariffs at China. The People’s Republic, which already levied import duties on foreign-made cars, but had promised to lower them, hiked its tariffs back up in retaliation. China’s tariff on U.S. vehicles now stands at 40 percent.

By manufacturing in-country with the help of local suppliers, Tesla can side-step the duties that forced it to raise sticker prices by up to 75 percent compared to the U.S. market. Relatively low-priced vehicle like the Model 3 and Model Y (a vehicle whose price point is unknown, but surely lower than the Model X SUV) are a shoo-in for the China factory. Fremont can handle the Model S and X duties.

While Tesla expects to be cash-positive by the end of the year, the assembly plant’s price tag worries some investors. It’s possible Shanghai might help in that regard.

“The Shanghai municipal government will fully support the construction of the Tesla factory,” said the Shanghai Municipal People’s Government in a statement printed by Reuters.

In the past, Tesla argued against China’s policy of requiring foreign automakers to partner 50-50 with a local manufacturer, but the country has since announced an end to that practice. The mandate should run its course by 2022 — roughly the same time as the plant’s opening. With the threat of technology theft lessened, Tesla claims it plans to invest in R&D at its Shanghai facility.

[Image: Maurizio Pesce/Flickr (CC BY 2.0)]

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18 Comments on “Mr. Musk Goes to China, Vehicles to Pour Forth...”


  • avatar
    gasser

    If Tesla goes through with this, he can kiss his technology “good bye”.

    • 0 avatar
      ClutchCarGo

      Re-read the last paragraph. Forced partnerships go away by the time the new factory opens. If that remains true then the implicit tech transfer is not an issue.

      • 0 avatar
        mike978

        Don`t be so naive. China will find ways around that to still steal technology – they can do it the old fashioned way if need be.
        If they put some of the money up for the factory then they will drive a hard bargain with Tesla – Musk may be able to get a good deal in the US and California but the Chinese are much tougher and strategic.

    • 0 avatar
      PandaBear

      Tesla already “open source” all the patents on the EV. They make money selling batteries and basically toss in the car for free.

      China will likely ask Tesla to buy their locally sourced battery instead of shipping in from the US gigafactory anyways, and throw in a free factory there so they don’t have a glut of batteries.

      The oil companies will be pissed, and ask Trump to back off on the trade wars. Imagine a big reduction in oil demand in Asia and a flood of Chinese Tesla on the international market causing huge oil demand collapse.

  • avatar
    NL

    How is the cramped Model 3 back seat going to play in China, I wonder?

  • avatar
    incautious

    “Technology” what tech. The 8000 AA size cordless drill batteries hooked up to an electric motor. Or is it the autocrash system. Or the 35K EV for the masses or…..

  • avatar
    94metro

    I was looking forward to buying an affordable american-made Tesla at some point in the future (actually affordable, as in starting mid 20K range, not the current Model 3s that are available). It would be a bummer if such a vehicle was only made with a chinese VIN.

    • 0 avatar
      TwoBelugas

      I don’t think there will be any mid 20k when new Teslas even with Chinese made ones.

      • 0 avatar
        94metro

        Interesting, is that due to battery cost?

        • 0 avatar
          TwoBelugas

          Given the low tariff imposed on cars assembled outside the NAFTA and free trade partners of the US, if there was a way to bring a viable electric car to the US for under 30k it would have been done and no federal and state tax credit would have been necessary.

          Tesla also has a brand image to protect. If plebs start rolling around in 25k Teslas, it won’t be long before you see a few year old 2nd hand for 10k given the massive depreciation electric cars have. The Mode S, X, and Y buyers would defect quickly if that happens.

  • avatar
    Sub-600

    I thought it read “Mr. Monk goes to China” for a second. He’d never go there, not with all that avian flu going around.

  • avatar
    threeer

    Sure…”lessened” to what degree? Does anybody think that a technology transfer (if not theft) won’t be required or demanded? Another company drops at the alter of the “cheap” in order to do business in China. Tell ol’ Elon he’ll have to throttle back his internet content each and every time he travels there.

  • avatar
    Art Vandelay

    So he is going to produce the high margin vehicles domestically but outsource the lower margin stuff to countries less costly to produce in. So how exactly does this make Tesla different than the supposed “Morgue” up in Dearborn?

  • avatar
    cicero1

    Three years, so in Tesla time around 2075.

  • avatar
    Art Vandelay

    I ask seriously…no snark intended, but is Tesla being cash positive by the end of the year a real possibility or Musk being Musk here? Also, if so has there been any word on an updated model S? The design has changed little since 2011. If the company is turning a corner and looks viable I’d add the S to my list of vehicles I’ll look at in a couple years, however I’ve heard of nothing new in the pipeline and it will be 9 years old with only a minor refresh at that point. I’d like to see it get an interior more fitting of something in that range.

    • 0 avatar
      mike978

      I would expect in typical Tesla fashion that it will be about $100 cash positive after pulling out all the stops like charging $2500 for orders that get built in January 2019 etc.

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