Fri | May 24, 2019

Tesla to build factory in China as tariffs bring urgency

Published:Sunday | July 29, 2018 | 12:00 AM
A Tesla Model 3 in deep-blue metallic paint with 19-inch wheels pictured in Arlington Heights, Illinois.

Tesla on Tuesday announced plans to build a new factory in Shanghai that's expected to make 500,000 electric vehicles annually within about five years.

The Palo Alto, California-based automaker signed a deal with the government of Shanghai as CEO Elon Musk visited the city.

Musk had repeatedly said Tesla was close to announcing a new plant in China, where he has said the company would collocate production of electric vehicles and batteries.

Tesla said it expects to begin construction "in the near future, after we get all the necessary approvals and permits".

After that, the company expects it to take about two years to begin making vehicles and another two to three years to reach 500,000 annually.

"Shanghai will be the location for the first Gigafactory outside the United States," Musk said in a statement. "It will be a state-of-the-art vehicle factory and a role model for sustainability."

The long-expected expansion abroad can't come a moment too soon for Tesla, which is getting hit hard by increased Chinese vehicle tariffs imposed on imported vehicles.

Tesla, which currently assembles all its vehicles at a plant in Fremont, California, raised prices on cars in China after the trade dispute between President Donald Trump and China prompted the tariff hike from 25 per cent to 40 per cent.

Manufacturing the vehicles in China would exempt them from those tariffs.

Relief won't come any time soon, however. It typically takes at least a few years to construct a new automotive assembly plant from scratch.


Complicating matters


Tesla has faced significant challenges in accelerating production at its current plant, which must speed up output of the new Model 3 sedan.

The company recently took the unusual step of erecting a tent outside its California factory to add an assembly line in a bid to make vehicles faster.

One positive development for Tesla is that the Chinese government has signaled plans to remove a previous requirement that automakers share technology and profits with Chinese partners through joint ventures. Supporters of Trump's trade strategy have credited his aggressive approach with that development, which will bolster Tesla's profitability in China.

"We still have to express an order of appreciation to the Chinese government in that regard," Musk said in May.