Tesla goes big in China with Shanghai plant

Image Source RUNGROJ YONGRIT  EPA-EFE  REX  Shutterstock

China presents a massive growth opportunity for Tesla and rivals such as BMW AG and Daimler AG, which are seeking to take advantage of a massive and fast-growing market for new-energy vehicles.

As the trade war between the USA and China (as well as the rest of the world) escalates, Tesla announced Tuesday an agreement with Chinese officials to build a new factory in Shanghai, reports Reuters. Local production would also allow Tesla to reach a wider audience of buyers in China and in the Asia-Pacific region, offering lower prices and tailoring the vehicles' offerings to the tastes of the local market.

Tesla chief executive Elon Musk will meet with Chinese officialsBeijingnghai and Baijing this week.

The company said the China factory would not affect production in the United States, which is forecast to increase. Musk, 47, said more than two years ago that he expected Tesla to produce more than 500,000 vehicles in 2018 at its lone car-assembly plant in Fremont, California, but the company is well off that pace because of the Model 3's slow start.

He added that Tesla could lose market share to Chinesecompetitors, such as NIO, as a result.

Its basic Model S sedan in China now costs about 849,900 yuan ($128,779), versus 710,579 yuan in May, while a Model X sport-utility vehicle costs about 927,200 yuan, versus 775,579 yuan, according to Tesla's website. "The Shanghai municipal government will fully support the construction of the Tesla factory", its statement said. Tesla builds its electric sedans and SUVs at its factory in Fremont, Calif. and ships them to China, which subjects the vehicles to an import tariff. China accounted for 17 per cent of Tesla's revenue for 2017, according a filing with USA regulators.

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The Chinese plant announcement comes just after Tesla raised prices on its cars in China by more than 70 percent higher than those it sells in the United States.

Global automaker Daimler (DDAIF) warned last month that the new Chinese tariffs would hit its profits, resulting in "fewer than expected SUV sales and higher than expected costs", which won't be completely passed on to customers.

CNET reports that the tensions between the US and China caused the electric auto maker to raise the prices on its Model S and Model X vehicles. Ford, GM, Nissan, Volkswagen and other competitors have announced ventures with local automakers to develop models for China's lower-income market.

The youngest publicly held US automaker is looking to expand its capacity and more efficiently reach global markets. That gave it about 3 per cent of the nation's battery-powered electric-vehicle market, placing it as the No. 10 brand in that segment.

The plan went ahead after Beijing said in April it would end limits on foreign ownership of electric vehicle producers this year.

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