Tesla is moving ahead with its plans for growth in China by building a Giga-factory in Shanghai. It is an iconic company for electric cars with the mission to take the world towards sustainable energy. The company had announced the progress earlier this year after entering a cooperation agreement with the Shanghai Lingang Area Development Administration. Consequently, this week it secured the rights to acquire around two hundred acres in Liangang area near Shanghai. After completion, it will be the first Giga-factory with a huge capacity manufacturing plant for electric batteries outside the U.S.
Tesla has pioneered the all-electric vehicles along with the scalable clean energy generation and storage products. This event indicates a significant step for Tesla towards achieving lesser manufacturing costs and profits. It is rapidly expanding its global market share. The factory is named as Gigafactory-3 that will enable the company to lower expenses on labor and overall manufacturing while reducing shipping costs and times. Tesla’s leadership has acclaimed it as an important milestone for what will be their next advanced, sustainably developed manufacturing site.
The Background Story
Tesla indicated previously at the beginning of this year that it is constructing of the Shanghai-based factory in a fast-track mode. The project will be able to build half a million electric Tesla cars per year which is more than its lone US based plant. It will also be able to produce all the batteries and motors they will need.
The company may not have sufficient funds to achieve a rapid build-out of the plant. It will need to raise additional money even if it is expected to use efficiencies learned during the Model 3 production launch. Tesla was the sole bidder for the plot of land and was estimated to be priced at around one billion yuan which is equivalent to around 145 million USD. This decision by the Shanghai government to allocate the land to Tesla was pending since last month.
The company has commented that the Shanghai factory will augment current manufacturing and its U.S. operations will not be hampered. In fact, setting up production in China will enable the company to avoid import duties of almost forty percent. The result is the availability of cheaper cars in the world’s biggest market for electric vehicles.
Good News for Distressed Tesla
The progress of its strategies in China brings the good news for Tesla which was in distress because of the decline in the stock market since last few months. Tesla stocks have fallen by more than seventeen percent this year after news of a possible controversy with U.S. regulators has spread in the market.
The real reason for Tesla’s hurry is to avoid the losses that may result from trade tensions between the U.S. and China. It is facing forty percent tariffs on Tesla vehicles while imports from other countries are only at fifteen percent. The cost of transport of its electric vehicles and the lack of access to cash incentives available to local producers resulted in a position of disadvantage for the company.
Tesla is expected to invest an equally huge amount of five billion USD for this plant near Shanghai. According to sources familiar with the plans, it is raising the funds from local partners. Elon Musk told analysts that he is expecting around two billion USD as estimated requirements for the giga-factory to be able to produce around one-fourth of a million electric vehicles in a year.