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Tesla to build Shanghai plant

Elon Musk and Shanghai Mayor Ying Yong shake hands. Shanghai Municipal People’s Government/via REUTERS

Tesla’s long awaited Chinese factory could be making cars two years after construction starts

It’s official. After months of rumour and speculation, Tesla CEO Elon Musk has announced a deal to build an automobile plant in Shanghai, their first outside the US.

Not only will this double the size of their global manufacturing capacity, but it will give them direct access to the Chinese market. This is especially important as the developing trade war between the US and China has seen Tesla increase the price for its vehicles by 20%, or about US$20,000-30,000 more in some cases, jeopardising Tesla’s place in the world’s largest EV market.

The move will benefit China as well, since the factory will attract international investment and expertise to the country. This will help the country develop its high-tech sector.

Tesla said that is aims to produce the first cars about two years after construction begins on the factory. The company added that this could be increased to around 500,000 vehicles per year about two to three years later, the company said, equivalent to the planned annual production from its US plant in Fremont, California.

This would make it one of the largest car factories in the world, well ahead of an industry average of 200,000-300,000 cars per year (though still behind Volkswagen’s Wolfsburg factory in Germany, which can churn out around 800,000 per year).

Of course, given the slow pace of the Model 3’s production, it may take some more time to reach this target.

In a statement, the Shanghai government said it will financially support the construction of the Tesla factory. This will be welcome news for Tesla, as the company only held around US$2.7 billion in cash at the end of the first quarter of this year,

Tesla aims to become cash-positive this year, but the company will still need funds to pursue a number of new projects.

However, both parties have so far neglected to mention the cost of the Shanghai plant. It is likely to cost considerably more than the Fremont plant, which was based around the existing NUMMI factory, which Tesla picked up for a mere US$59 million, including equipment.

Depending on funding, this could also jeopardise plans for a European factory. If Tesla finds it only has funds for one factory, the Chinese one would undoubtedly be its preferred option.

Construction should begin as soon as the permits and approvals are secured, a process that, with the Chinese government’s backing, should move along quickly.

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