Tesla has made it official, announcing the construction of its new Gigafactory in Shanghai, China. CEO of Tesla, Elon Musk, made the announcement on Monday, with the ultimate aim of reaching a production level of half a million vehicles each year.
The construction of the factory is set to be a lot faster than many would expect. The new Gigafactory’s initial plan is to be completed by summer of 2019. The decision driving the construction of this new factory is to produce cheap electric cars, particularly the Model 3, hopefully starting by the end of the same year.
Gigafactory’s announcement by Elon Musk comes as the single biggest foreign investment seen by Shanghai in its entire history. Tesla, as per the government, initially wants to start producing 250,000 cars per year, eventually reaching its target of producing half a million cars annually. If achieved, this production level would stand five times higher than what Tesla has been able to produce in the US.
The factory, according to Tesla, also aims to produce the more affordable versions of Model 3. The factory in China has plans in the pipeline to sell Model Y crossovers to its Chinese customers.
As for now, Tesla plans to continue producing the more high-end Model S and Model X in the US for all its US and international customers.
US-China Trade War and Tesla’s Entry into the Chinese Car Market
Tesla is entering into the Chinese automotive market at a time when the Chinese economy is slowing down and the country has an ongoing trade war with the US. Similarly, China remains one of the biggest producers of electric cars in the world. Thus, Tesla would have to keep its price competitive to successfully sell its cars to the Chinese customers.
One part of the plan is to start producing cars in China so that Tesla is able to avoid the tariffs imposed by the Chinese government on cars imported from the US.
The Federal Tax granted by the US government to Tesla customers will also start to fade away in the future. Thus, adding more pressure to the sale of cars in the US. Thus, among other reasons, Tesla also wants to make up for that lost profit in the future by selling cars to Chinese customers.
More About Tesla’s Gigafactory in China
The factory is estimated to cost $2 billion. It would be the first wholly foreign-owned car plant in China. The new Gigafactory in China also reflects the Chinese government’s shift in policy, opening its car market to the foreign companies that want to invest here.
Competition in the Chinese Electric Car Market
Tesla would have to fight a fierce battle with other electric car makers in China. For example, BYD (Build Your Dreams) is an electric car maker in China with investment from Warren Buffet. With shady intellectual copyrights, Tesla may not necessarily have the same kind of protection against getting its designs copied. Also, many of the cars that look and work a bit similar to Tesla’s car models cost almost half the price.
The company would have to come up with a strategy to still keep customers interested in its vehicles. Also, since the pollution problem is rampant in China, the authorities there want to get as many electric cars on the road as possible. The target set by the government is to have 2 million electric vehicles sold in the country by 2020. The government also offers subsidies to the car buyers buying electric vehicles. Thus, that also provides an incentive for the company to move in a country readily promoting the use of electric cars through subsidies to the customers, already enjoyed by Tesla in the US.