Tesla Close to a Deal to Build Vehicles in China

According to a report from Bloomberg, Tesla is close to an agreement to produce vehicles in China for the first time, giving the electric-car maker better access to the world's largest auto market. The agreement with the city of Shanghai would allow Tesla to build facilities in its Lingang development zone.

Eric Walz
    Jun 19, 2017 4:53 PM  PT
Tesla Close to a Deal to Build Vehicles in China
author: Eric Walz   

June 19, 2017 – According to a report from Bloomberg, Tesla is close to an agreement to produce vehicles in China for the first time, giving the electric-car maker better access to the world's largest auto market, according to people familiar with the matter. The agreement with the city of Shanghai would allow Tesla to build facilities in its Lingang development zone, may come as early as this week.

Jinqiao Group, a Shanghai government-owned company, has signed a non-binding memorandum of understanding with Tesla on building its production facilities in the municipality, said the person, who asked not to be identified because the negotiations are private.

Shanghai Jinqiao Export Processing Zone Development Co., a publicly traded unit of Jinqiao Group, said its controlling shareholder hasn't signed any documents related to a joint venture for a Tesla Motors Inc. factory. Tesla Motors has yet to publically comment on the news.

Setting up EV production in China is key for Tesla to continue growing in the country, where the company's revenue tripled to more than $1 billion last year. Most importantly, assembling vehicles locally would allow the company to avoid a 25% tax that makes Model S sedans and Model X crossovers more expensive in China than in the U.S.

China has identified new-energy vehicles as a strategic emerging industry and aims to boost annual sales of plug-in hybrids and fully electric cars 10-fold in the next decade. Government support helped China surpass the U.S. in 2015 to become the world's biggest market for the non-emission autos.

Bringing down the costs of electric cars is crucial to Elon Musk's ambitions to reach more mass market consumers. Tesla is expected to start production of the long awaited Model 3 next month.

In March, Tencent Holdings, China's biggest internet company, bought a 5 percent stake in Tesla for $1.8 billion. Teaming up with the owner of the WeChat and QQ messaging services could help the automaker gain traction in a market where more than 200 companies have announced plans to build new-energy vehicles.

Tesla purchased its only vehicle assembly plant in Fremont, California. from Toyota Motor Corp. in 2010 for just $42 million. The Fremont plant is running near capacity at its current size. However, by the end of 2018, Tesla plans to produce 500,000 electric cars per year, so it will likely require additional facilities to reach its goal.


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