Electric car maker Tesla has reached an agreement to set up a wholly owned manufacturing facility in Shanghai, in the city’s free-trade zone.
This arrangement, the first of its kind for a foreign auto maker, could enable Tesla to slash production costs, but it would still likely incur China’s 25% import tariff, reports the Wall Street Journal.
China’s electric vehicle market is already the world’s largest. The Chinese government is targeting 7 million EV sales a year by 2025, up from 351,000 last year, and in September it ordered all auto makers in China to start producing EVs by 2019. Reportedly, the officials are working on a plan to ban gasoline cars.
Besides the aforementioned reasons, Tesla’s sales in China is growing since 2015 – from 7.9% (of total sales) to 18.7% in 2017. Tesla reported more than $1 billion in revenue in China for 2016. Today, a Tesla costs 50% more in China than it does in the US. A local manufacturing facility will offer proximity to the Chinese supply chain, thereby lowering production costs and ultimately the price tag of a Tesla car.
The map above shows Tesla’s presence in China. In case you missed it, Elon Musk was in discussion with the Indian Government for a ‘temporary relief’ on import duties until a manufacturing facility is setup, and was also seeking some additional clarifications. But things seems to have not worked out, or perhaps Elon thought that a factory in China will make more sense, for obvious reasons.
While the Indian government claims to have an ambitious plan to have only electric cars by 2030, so much so that it doesn’t want to support hybrids anymore, the infrastructure for EVs is pretty much non-existent at this point, not to mention the hurdles for setting up one. The Prime Minister’s visit to Tesla factory in 2015 didn’t seem to work either.