Tesla inks deal to build second factory in Shanghai

Ann Santiago
July 11, 2018

In April this year, however, China said it would be removing the 50-percent foreign ownership cap for electric vehicle (EV) and plug-in hybrid auto manufacturers as early as this year, in a move that would benefit Tesla enormously, which doesn't have local manufacturing and imports all the vehicles it sells on the Chinese market-the world's biggest EV market.

Elon Musk just signed an agreement with the government in Shanghai to build a Tesla factory in China.

China is an extremely important market for Tesla. Bloomberg reported earlier that Musk, Tesla's chief executive officer, would be in the city for an event with the government on Tuesday. The facility is slated to be Tesla's biggest outside of its factory in Fremont.

Tesla and Shanghai authorities did not immediately respond to requests for comment.

The Shanghai city government announced the news on its WeChat channel, and said that the factory aims to produce as many as 500,000 vehicles per year once it is fully up and running.

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

Tesla released its eagerly-anticipated second quarter report on vehicle production and deliveries today, as it passed a crucial production milestone for the Model 3 sedan.

A Tesla spokesperson added, "We expect construction to begin in the near future after we get all the necessary approvals and permits".

Tesla last month told shareholders that it was working with officials in China to build electric cars and battery packs in Shanghai.

Tesla is the first major United States automaker to raise prices in China in response to the higher tariffs. Tesla has built about 88,000 cars through the first half of this year. That was more than double the US level of just under 200,000. China until recently levied 25-percent tariffs on imported cars, and for decades automakers have been moving to build more vehicles in the markets where they are sold to neutralize currency shifts and trade policy reversals. In addition to avoiding China's import duties on US-made cars, a plant in China also will reduce shipping costs and potentially make sourcing components more economical.

Prices of Tesla vehicles sold in China have increased by over $20,000 thanks to the ongoing trade war between the United States and China.

Other foreign automakers that could announce price increases in China include German automakers BMW and Daimler AG.

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

Auto brands in China are required to make electric vehicles at least 10 percent of their sales starting next year or buy credits from competitors that exceed their quotas.

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