Tesla heads to China to build 500000-capacity carmaking plant

11 July, 2018, 02:20 | Author: Mary Valdez
  • Image Source RUNGROJ YONGRIT  EPA-EFE  REX  Shutterstock

Tesla may be holding off on "formal messaging" about its China plans until it shows more meaningful steps toward profitability, said Brad Erickson, an analyst at KeyBanc Capital Markets with the equivalent of a hold rating. China accounted for 17 percent of Tesla's 2017 revenue, according a filing with USA regulators. A Tesla representative in China didn't immediately respond to a request for comment.

The company had only just cut its prices in China in May after Beijing announced it was slashing tariffs on vehicle imports from 25% to 15%.

China's tariffs are expected to hurt automakers, firms that make industrial components in the United States, and producers of soybean, whisky and other agricultural items. Tesla, which said it expects to increase its manufacturing rate to 6,000 Model 3 per week by late next month, told BI that every auto goes through "rigorous quality checks, including brake tests". Tesla has built about 88,000 cars through the first half of this year. Sales in China accounted for about 17 percent of its revenue previous year.

The quest to construct its third so-called gigafactory gained urgency as Donald Trump has engaged in a trade war that's ensnared imports of Tesla's vehicles into China. "This will certainly not be good for consumers or for Tesla's sales in China", said Bill Russo, founder of Shanghai-based consultancy Automobility.

But Tesla and producers including GM and Nissan Motor Co. had been reluctant to transfer manufacturing to the country due to the requirement to share technology with Chinese partners that might become rivals.

BMW recently said it was unable to "completely absorb" the new tariffs, while Daimler has flagged that it "aims to maintain a competitive position" in China.

But the latest retaliatory tariffs mean importers will have to fork out a total 40 percent duty on all USA -made cars they sell in China.

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By building another factory in their second-largest market, Tesla could bypass the tariff war between the USA and China.

Musk had previously criticized China's tough auto rules for foreign businesses, which would have required it to cede a 50-percent share in the factory. The South Carolina BMW plant, the company's largest in the world, is also the largest source of United States auto exports.

Tesla (NASDAQ:TSLA) shares tumbled below $300 in early trading Thursday, July 5, to bring their three-day loss to almost 17%, as several Wall Street firms remain skeptical about the quality of the carmaker's Model 3 cars and its ability to meet weekly production targets profitably. "We are now calculating related necessary pricing increases", the company said in a statement. Musk's company got around the encouraged/required partnership with a local Chinese company by opting to build in Shanghai's free trade zone.

Tesla makes most of its cars in California, although it does some final assembly of cars in a much smaller plant in the Netherlands.

Tesla has finally signed a formal agreement with Shanghai officials to build its first factory in China.

"From there, it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers", the spokesman said. If Tesla did not have room in its Fremont plant to build capacity for 5,000 cars a week, how will it manage 10,000, the analyst asked. But a Tesla factory in Shanghai could transform the company, bypassing tariffs and tapping into China's strong research and development capabilities as well.

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