Tesla Factory in China

Tesla Factory in China is First for the Automaker Abroad

The first Model 3 sedan deliveries from Shanghai are coming to Chinese streets in 2020. Not only is the Tesla factory in China one of the fastest built of its size in history, but it also provides impressive production capabilities even with the quick turnaround.

Over $1 billion in local funding helped to make the impressive deliveries possible. It’s the first manufacturing facility outside of the United States for this automotive disrupter, although a large factory is in the works for a location outside of Berlin.

Cars made in the country enjoy exemption from the 10% tariff applied to imported vehicles. Government purchase incentives of up to $3,600 can drive sales higher.

Tesla is targeting the expected production levels for the initial run to be around 1,000 vehicles per week. Once the factory reaches full capacity, it could produce about 3,000 Model 3 sedans.

Will Cars from the Factory in Shanghai Ever Reach the United States?

Tesla has a lot to lose from China’s 2019 announcement that a 25% tariff on American vehicles would apply to any imports.

The manufacturer is one of the four largest sellers of American-made vehicles in China. Tesla currently holds about 7% of the Chinese automotive market, sitting behind Ford’s impressive 20%.

Two German automakers, Daimler and BMW, are responsible for about 230,000 transactions per year, control about 57% of the market.

The vehicles built from the Tesla Factory in China for the lower manufacturing expenses are not likely to see American roads unless private owners import them. Tariff structures currently add a high cost to the final retail price, which is why the Shanghai Gigafactory is such an essential development for Tesla.

Why Does Tesla Need a Factory in Shanghai?

Elon Musk, Tesla’s Chief Executive Officer, told investors during a third-quarter earnings call that it costs up to 60% more to produce vehicles in the United States when compared to China.

The Chinese market is also the largest in the world for electric vehicles. Because Tesla now localizes production on its $2 billion Gigafactory in Shanghai, the Model 3 sedan and future models in China could result in up to 500,000 vehicles sold per year.

Before the tit-for-tat tariffs during the trade war between China and the United States, Tesla was importing vehicles to China from American manufacturing.

Although sales have been minimal for Tesla compared to the largest competitors in the field, Tesla expects that the incentives and tax breaks for having local manufacturing will give it a distinctive advantage.

Only time will tell if Tesla’s gamble in China, and ultimately Asia, is going to pay dividends. Even if sales are slower than expected, the production capacity sets up the company for a bright future.