Mr. Musk Goes to China, Vehicles to Pour Forth

Tesla’s sole assembly plant in Fremont, California won’t be lonely for long. A preliminary deal reached between the automaker and the government of Shanghai could see a new assembly plant start production in about three years’ time. The Chinese plant would most likely build Model 3s and upcoming Model Y crossovers, Bloomberg reports.

Assuming Tesla can scrounge up the $4 to $5 billion needed to complete construction of the facility (a Goldman Sachs estimate), the plant could produce up to 500,000 vehicles per year. And it just so happens that Shanghai has a free trade zone.

This morning’s news was foreshadowed when a new Tesla subsidiary popped up in that city in May. Musk travelled to China on Tuesday, stopping near a cave in another country on the way.

Shanghai is an increasingly attractive target for foreign automakers, especially since the Trump administration launched a series of trade tariffs at China. The People’s Republic, which already levied import duties on foreign-made cars, but had promised to lower them, hiked its tariffs back up in retaliation. China’s tariff on U.S. vehicles now stands at 40 percent.

By manufacturing in-country with the help of local suppliers, Tesla can side-step the duties that forced it to raise sticker prices by up to 75 percent compared to the U.S. market. Relatively low-priced vehicle like the Model 3 and Model Y (a vehicle whose price point is unknown, but surely lower than the Model X SUV) are a shoo-in for the China factory. Fremont can handle the Model S and X duties.

While Tesla expects to be cash-positive by the end of the year, the assembly plant’s price tag worries some investors. It’s possible Shanghai might help in that regard.

“The Shanghai municipal government will fully support the construction of the Tesla factory,” said the Shanghai Municipal People’s Government in a statement printed by Reuters.

In the past, Tesla argued against China’s policy of requiring foreign automakers to partner 50-50 with a local manufacturer, but the country has since announced an end to that practice. The mandate should run its course by 2022 — roughly the same time as the plant’s opening. With the threat of technology theft lessened, Tesla claims it plans to invest in R&D at its Shanghai facility.

[Image: Maurizio Pesce/ Flickr ( CC BY 2.0)]