Electric vehicles: Made-in-China Tesla is on its way

Electric vehicles: Made-in-China Tesla is on its way

Posted on 25th October 2018 in General News.

In mid-October, Tesla successfully acquired 865k sqm of land in Lingang, near Shanghai’s free-trade zone for RMB 973M (US$140M). The land will be used for its new Gigafactory 3, which will be Tesla’s first in China. The factory is planned to have initial capacity of 250k electric vehicles (EVs) and battery packs per year and will eventually target an annual capacity of 500k EVs. Tesla’s first made-in-China vehicles are expected to come to the market in about three years. According to a press release from Shanghai Municipal People’s Government, the Gigafactory 3 will be the largest foreign-investment manufacturing project in Shanghai’s history.

Tesla Shanghai was registered and established in Shanghai in May. Plans for Tesla’s wholly-owned Shanghai factory were first announced in July. A cooperative agreement between Tesla and the Shanghai Municipal People’s Government was signed in the same month, with a mutual goal of promoting technology innovation and industry development.

Roskill Review:

As a result of the China-US trade war, tariffs on vehicle imports from the US increased to 40%, which then prompted Tesla to increase prices in China. The price adjustments have caused some negative impacts on sales volumes in China. On the other hand, the new tariffs are likely to have accelerated investment in Tesla’s Shanghai factory.

Largely standardised policies have turned China into an important market for many large, foreign carmakers. In particular, China has removed foreign ownership restrictions for EVs from July 2018, and joint-venture restrictions for foreign automakers will be phased out by 2022. Tesla is the first to benefit from the new policy. Previously, the ownership restrictions required foreign companies to set up 50-50 joint ventures with a Chinese partner in order to manufacture cars. 

Tesla needs to be prepared, however, for some big challenges before it will be able to produce 500k vehicles in China. For instance, EV subsidies will be completely phased out by 2020. This is in addition to the standard difficulties of cash flow and capacity ramp-up.

To discuss the Chinese electric vehicle market with Roskill, contact Nessa Zhang: nessa@roskill.com