Tesla to Build Cars in Shanghai, China

Tesla Inc. CEO, Elon Musk, has already admitted that his company will have to set up vehicle and battery manufacturing facilities in Europe and Asia sometime in the near future.

Once again, the only factory in Fremont, California is behind from its production targets with only being able to finish 260 units of its new Model 3 sedan.

Last Sunday, Tesla pointed to a previous statement they’ve made in the middle of the year that they are in talks with the Shanghai Municipal Government to put up a factory in one of their economic zones.

Although these kinds of deals can be tricky, Tencent Holdings Ltd. Has a 5% stake in Tesla so it might help the carmaker get a favorable entry to the Chinese market as Tencent is a Chinese Internet company.

It is reported by the Wall Street Journal that they have already reached an agreement to start by the end of this year but Tesla has not confirmed that a concrete deal has been made.

There is a 25% levy duty on sales of imported vehicles to China but they have not allowed any foreign car company to establish factories in the country so far. Even if they are the world’s biggest car market, automakers that has a presence there only owns a certain percentage. This might pose a problem for Tesla as they are known to be vigilant when it comes to intellectual property and their independence as a company. But with their goal of establishing a stronger foothold in China which is gaining a large following in the electric vehicle model, they might just be willing to make some concessions.

Fortunately, the Shanghai, China Municipality has been considering to allow foreign electric automakers to own car factories wholly because they want to meet higher sales revenues. Plus, they want to support hybrid and electric vehicles which will help their environment. These “new energy vehicles’ as their government puts it, can be manufactured in free trade zones and Tesla might be the first to partner with them.

But regardless of the partnership, Tesla will still have to pay 25% duty for their vehicles set up in any of Shanghai’s free trade zone. The upside though is that the company can lower production costs significantly.

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