Tesla breaks ground on its Gigafactory in China

Matthew DeBord  Business Insider

Matthew DeBord Business Insider

In July, Tesla raised the prices of the Model 3 and the Model Y by about 20 per cent in the mainland after Beijing slapped an additional 25 per cent tariff on American-made vehicles, a retaliatory measure against the USA administration as trade tensions between the two countries escalated.

The Tesla boss said: "We think with the resources here we can build the Shanghai Gigafactory in record time and we're looking forward to hopefully having some initial production of the Model 3 towards the end of this year".

Tesla signed a preliminary agreement with the Shanghai government previous year to build the 500,000-unit factory in the Chinese city.

As a USA -made vehicle, Tesla's cars in China have been subject to steep tariffs, and sales have suffered from the U.S.

For context, that number is about double Tesla's current yearly production.

"Aiming to finish initial construction this summer, start Model 3 production end of year & reach high volume production next year", Musk wrote in a separate post on Twitter.

China is the largest market for electric vehicles, and most forecasters predict EV sales in the country will accelerate rapidly as government regulation drives toward a goal of 100 per cent electric vehicles by 2030.

He said the Shanghai factory would produce "affordable versions" of its Model 3 and the planned "Y" model that has yet to receive a formal name.

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Producing vehicles in China could reduce Tesla's costs of tariffs and ocean transport for Tesla which, the company said in October, burdened it with a cost disadvantage of 55 to 60 percent.

Tesla secured the site for its 500,000 vehicle capacity plant in October and has already begun hiring staff and starting procurement for building materials.

"And the competition is getting more and more fierce".

Cheaper Model 3 versions will be produced in Shanghai for the Chinese market amid a pinched auto market and Chinese automakers such as BYD and Geely building their own electric vehicles.

A general view shows a construction site of a Tesla factory during a ground-breaking ceremony for the factory in Shanghai on Jan 7, 2019.

Shares in Chinese suppliers to Tesla, including Tianjin Motor Dies Co Ltd and VT Industrial Technology Co Ltd, rallied on Monday after Musk's tweets.

"It makes sense for Tesla to commit fully to becoming a leading EV brand in the world's largest EV market", said Bill Russo, chief executive of Shanghai-based consulting firm Automobility.

Other electric vehicle manufacturers in China include BYD Auto, BAIC Group, and government-owned Shanghai Automotive Industries Corp.

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