Markets

Why Elon Musk's New Shanghai Gigafactory Is Crucial for Tesla

Why Elon Musk's New Shanghai Gigafactory Is Crucial for Tesla

The Shanghai plant would supply the "Greater China region" with "affordable versions" of the Tesla Model 3 - the carmaker's first mid-price, mass-market vehicle - and its planned Model Y, Musk tweeted.

Domestic production would help shield Tesla against import duties as the US and China find ways to wriggle out of the tariff quandary. It also comes on the back of Tesla's ability to ramp up production of Model 3 sedans, marking the beginning of a turn in market sentiment.

Tesla is eager to get the factory up and running as soon as possible so it can begin constructing select models locally.

Tesla has opened a tender process to build a $2 billion plant in Shanghai - dubbed a Gigafactory - and at least one contractor has started buying materials, Reuters reported earlier last month.

Tesla's factory in China - the world's biggest vehicle market - will be its first outside the US.

The plant in a Shanghai suburb is Musk's biggest overseas move yet and will eventually have an annual production capacity of 500,000 vehicles, Tesla says, dramatically increasing the California-based company's output.

Gigafactory 3 will be China's first wholly foreign-owned auto plant and should allow Tesla to minimise the impact of the trade war which has seen Beijing impose big tariffs on USA vehicle imports. Beijing has since dropped tariffs on some United States goods, allowing Tesla to slash the cost of vehicles to China.




Chief Executive Elon Musk was on hand at the 210-acre site to press a button to "switch on" the plant, which at the moment is a field.

Producing cars in China should help Tesla fend off competition from domestic electric vehicle brands.

Musk was in Shanghai Monday to mark the official groundbreaking of Gigafactory 3, Tesla's first auto- and battery-assembly plant outside the U.S. Chinese consumers who have reserved the Model 3 can now configure it online, and the company expects deliveries for newly placed orders to start in March. A key China PMI index fell below 50 in December to its lowest reading since May 2017, signaling weakening demand in the $12.2 trillion economy.

'Aiming to finish initial construction this summer, ' Musk tweeted.

The first of the new electric models being developed by global automakers to hit the market, Nissan's Sylphy Zero Emission, began rolling off a production line in southern China in August.

Analysts have said production in China would allow Tesla to avoid such tariffs, which already have caused a spike in the price of the cars that Tesla now imports to the Chinese market.

"With the construction of the Shanghai factory, the faster the better (for Tesla)", Kang said.


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