Tesla Goes Big in China with Shanghai Plant

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Elon Musk and Shanghai Mayor Ying Yong shake hands. Shanghai Municipal People’s Government/via REUTERS
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By Brenda Goh
SHANGHAI (Reuters)

Tesla Inc Chief Executive Officer Elon Musk on Tuesday landed a deal with Chinese authorities to build a new auto plant in Shanghai, its first factory outside the United States, that would double the size of the electric car maker’s global manufacturing

The deal was announced as Tesla raised prices on U.S.-made vehicles it sells in China to offset the cost of new tariffs imposed by the Chinese government in retaliation for U.S. President Donald Trump’s heavier duties on Chinese goods.

Musk was in Shanghai Tuesday, and the Shanghai government in a statement said it welcomed Tesla’s move to invest not only in a new factory in the city, a center of the Chinese auto industry, but in research and development, as well. China has long pushed to capture more of the talent and capital invested by global automakers in advanced electric vehicle technology.

Tesla plans to produce the first cars about two years after construction begins on its Shanghai factory, ramping up to as many as 500,000 vehicles a year about two to three years later, the company said.

 

Tesla CEO Elon Musk leaves the Peace Hotel in Shanghai
Tesla CEO Elon Musk leaves the Peace Hotel in Shanghai, China July 10, 2018. REUTERS/Aly Song

 

That would make Tesla’s Shanghai plant large by auto industry standards, where most factories are tooled to build 200,000 to 300,000 vehicles a year, and roughly equivalent to the planned annual production at Tesla’s plant in Fremont, California.

Tesla shares rose 1.5 percent in U.S. trading even as some analysts questioned where the money-losing company will get the capital required to build and staff such a large plant.

 

Musk has said Tesla will be cash-flow positive this year

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.

“I am sure that Tesla needs fresh money at the latest next year,” said Frank Schwope, an analyst with NORD/LB.

The Shanghai government suggested it could help with some of the capital costs. “The Shanghai municipal government will fully support the construction of the Tesla factory,” its statement said.

 

 

Tesla said Tuesday’s announcement will not impact U.S. manufacturing operations, which continue to grow.

 

MUSK’S PURSUIT OF A CHINA PLANT

China is the largest market for electric vehicles, and most forecasters predict that electric vehicle sales in the country will accelerate rapidly as government regulation drives toward a goal of 100-percent electric vehicles by 2030.

More than 28 million vehicles were sold in China last year, and annual sales are forecast to top 35 million by 2025. That would be more than double the current U.S. market, where new light vehicle sales run at about 17 million vehicles a year.

 

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