Transport

Tesla plans to start China production in second half of 2019

Electric car maker is advancing its push into world’s biggest car market

A government announcement of a land request is seen on a fence on the land secured by Tesla for its Gigafactory in Shanghai. Photograph: Yilei Sun/Reuters

Thu Dec 6 2018 - 08:09

Tesla plans to start production in China in the second half of next year, the city of Shanghai said, as the US electric-car maker advances its push in the world's largest car market.

The mayor of the city, Ying Yong, visited the project site in the Lingang development zone in southeastern Shanghai and encouraged Tesla to accelerate construction, according to a statement on the city's WeChat social media account Thursday. The plant, dubbed Gigafactory 3, will be the biggest ever foreign-invested manufacturing project in Shanghai. A Tesla representative didn't have an immediate comment.

The California-based company has secured more than 200 acres of land for the China factory, which is expected to cost several billion dollars to build. Tesla’s first overseas plant will help the electric-car maker avoid some of the risks involved with importing vehicles, such as higher tariffs caused by the trade tensions between China and the US.

While China is Tesla’s biggest market after the US, volumes in the country have been limited because the company has had to rely on imports. The 40 per cent duty that China levies on cars brought from the US has had an impact on sales, the company said when reporting third-quarter earnings in October.

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The tariff has left Tesla’s models at a pricing disadvantage against local electric-car rivals such as BYD, while new Chinese entrants including NIO and Xpeng Motors are also racing to win over customers before Tesla starts its full-scale push in the country.

At the same time, the Chinese car market is headed for its first drop in at least two decades as economic headwinds, the trade war with the US and slumping stock prices weigh on consumers’ appetite to buy new vehicles.

New-energy vehicles - which include battery-powered, plug-in hybrid and fuel-cell automobiles - are bucking the trend. Sales of these models reached 777,000 units last year and could surpass 1 million in 2018, according to the China Association of Automobile Manufacturers. The government’s target is 7 million vehicles a year by 2025.

Chief executive Elon Musk said in October that Tesla was striving to start production of its Model 3 vehicle in China next year. The company has also started to advertise for employees for the new facility.

Shanghai authorities are helping Tesla obtain loans from some of the biggest Chinese banks to fund the new plant, people familiar with the matter said in August. Tesla may borrow about $1.3 billion locally for the facility, RBC Capital Markets analyst Joe Spak said last month. – Bloomberg

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