Tesla signs deal to open Shanghai factory

Alicia Cross
July 11, 2018

In response to the 25 per cent tariff the USA implemented on $34 billion worth of Chinese imports, the Asian superpower bumped its tariff on electric cars from 15 per cent to 40 per cent.

Tesla sold 14,779 vehicles in China previous year, according to data from LMC Automotive.

Tesla and the Shanghai government have left out a crucial detail in announcing a groundbreaking deal for the biggest name in electric cars to build its vehicles in China: how much it's all going to cost.

"According to the agreement, both parties will focus their cooperation on jointly promoting technology innovation and industry development, where the city of Shanghai will strongly support Tesla Shanghai", says a translated press release from the Shanghai Municipal People's Government provided to The Drive by Tesla. The vehicle, after all, gives Tesla healthy profit margins, considering that it starts at a price of $64,000 before add-ons.

Tesla Chef Executive Elon Musk signed the agreement at an event in Shanghai, which will be home to the plant. Analysts have predicted it will raise capital to fund a list of new projects, including launching an electric semi truck, a pickup truck, a compact SUV and new battery and vehicle production facilities that Musk has proposed for China and Europe.

Tesla did not immediately respond to requests for comment.

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The Shanghai city government announced the news on its WeChat channel, and said that the factory aims to produce as many as 500,000 vehicles per year once it is fully up and running.

The announcement came just as Tesla raised prices on its vehicles in China to offset the cost of tarrifs imposed by the Chinese government in retaliation for United States tarrifs recently levied on Chinese goods. Musk plans for the Fremont factory to produce 450,000 cars or more at full capacity. A Tesla spokesperson said in a prepared statement that after the plant opens, it would take an additional two to three years to sniff that mark of 500,000 vehicles manufactured annually. Electrek also says stores will get Performance Model 3 vehicles by the end of the month.

Musk was talking about building a Chinese factory long before the Trump administration proposed punitive tariffs on Chinese goods. A plant in China also reduces shipping costs and potentially makes sourcing components more economical.

China is the world's largest auto market overall, with more than 28 million vehicles sold a year ago, and annual sales are forecast to top 35 million by 2025. That was more than double the US level of just under 200,000.

Once the new China factory is operational, Tesla could build cars for the Chinese market without paying the new import duties.

Auto brands in China are required to make electric vehicles at least 10 percent of their sales starting next year or buy credits from competitors that exceed their quotas.

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