Tesla has inked a deal to build a manufacturing plant in Shanghai Free Trade Zone to lower production costs for the Chinese market. The automaker is eager to sell more electric vehicles in China as the communist government has set ambitious targets for zero-emissions vehicles.
While we don’t know the details, Tesla has signed an agreement with the municipal government of Shanghai to establish a wholly-owned private facility in the city’s economic zone. This is a first for a foreign automaker. as international automakers are normally forced to operate as a joint venture with Chinese companies. European automakers like Renault and Volkswagen hoping to develop EVs for the Chinese market are tied up with local firms and obligated to share their manufacturing process and technology with Chinese companies. Tesla has scored a major coup if they can own and operate their own manufacturing plant without a local partner. At the same time, their proximity to cheap suppliers, reduced labor and overhead, and low shipping costs will give the automaker a better position in the Chinese market. Analysts believe that Tesla will still have to pay the 25 percent import tariff, but the company obviously believes that the lower cost of manufacturing still offers significant advantages.
This is a big move for Tesla. The company has suffered significant delays at their Fremont, California manufacturing plant and it remains to be seen if they can meet the demand for the Tesla Model 3. Spinning up a new factory in China won’t be easy, but if Tesla succeeds the company will be better positioned to maintain a share of the booming Chinese market.