Sidestepping trade war, Musk breaks ground on Tesla Shanghai plant

Matthew DeBord  Business Insider

Matthew DeBord Business Insider

The factory is expected to double Tesla's electric auto production, beginning in two years.

Higher-priced models will be built in the United States for export to China, Musk said. The Shanghai plant is created to make another 500,000 cars annually-a massive step up for a company that sold fewer than 14,000 cars in China in the first nine months of 2018, according to LMC Automotive, which tracks the auto market. On Twitter, he explained that his company's new "Gigafactory" would be focused on producing Tesla's most affordable models, the Model 3 and the yet-to-be-revealed Model Y, for sale in Greater China.

In China, the billionaire-entrepreneur faces a auto market that probably shrank past year for the first time in at least two decades as uncertainties surrounding the trade fight between the world's two biggest economies, signs of weakening domestic demand and a stock-market slump take their toll on consumers.

China raised the import tariff on US cars to 40 percent in July, but cut it to 15 percent from the start of this year as part of a trade war ceasefire. The lower tariff will last until the end of March pending trade talks. When the site is ready, it will initially build 3,000 Model 3s per week and when it reaches full capacity, match Tesla's planned volume for its factory in Fremont, California.

Tesla has been pushing forward its plans for the plant after it secured the site in October, hiring staff, starting procurement for building materials and setting up a financial leasing company in the city.

Tesla's plans come as China's economy faces a slowdown - something Apple said has contributed to concerns it is going to miss its quarterly revenue target. And the competition is getting more and more fierce, ' said Alan Kang, Shanghai-based analyst for consultancy LMC Automotive.

Tesla is eager to get the factory up and running as soon as possible so it can begin constructing select models locally. Tesla has said it intends to produce up to 500,000 cars a year at the 210-acre facility within a decade. Beijing has since dropped tariffs on some U.S. goods, allowing Tesla to slash the cost of vehicles to China.

But Tesla has said its Shanghai plant will be "wholly-owned" by the company.

Wu Qing, a vice mayor of Shanghai, said the Tesla factory, the largest foreign direct investment project on record in Shanghai, was progressing on a rapid pace with the local government's support as Shanghai looked to enhance its manufacturing might.

China is the largest market for electric vehicles, and most forecasters predict EV sales in the country will accelerate rapidly as the government drives toward a goal of 100 per cent electric vehicles by 2030.

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