Tesla breaks ground on factory in Shanghai

Matthew DeBord  Business Insider

Matthew DeBord Business Insider

"Aiming to finish initial construction this summer, start Model 3 production end of year & reach high volume production next year", Musk tweeted.

The US electric auto maker Tesla CEO Elon Musk on Monday laid the foundation of a $7 billion plant in Shanghai, becoming the first company to benefit from a new Chinese policy of allowing foreign vehicle manufacturers to set up wholly-owned subsidiaries in the Asian nation. Located in Shanghai, the Gigafactory will localize production of affordable versions of the Tesla Model 3 and the Model Y for Chinese customers.

Model 3, for example, which starts at a price of Dollars 35,000 in the U.S. market, is sold between 500,000 yuan and 560,000 yuan (around USD 72,980 and USD 81,738) in China.

The carmaker, which now imports US-made vehicles to sell in China, is building the plant in an auto market that is set to contract this year for the first time in decades, though so-called new-energy vehicle (NEV) sales have been strong.

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 has said it plans to use mostly local debt to fund the factory.

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

The electric automaker purchased the site past year for roughly $140,000 and intends on building the 860,000-square-meter site far quicker than is typical of automotive factories, Forbes reports. The Shanghai plant is created to make another 500,000 cars annually-a massive step up for a company that sold fewer than 14,000 cars in China in the first nine months of 2018, according to LMC Automotive, which tracks the auto market.

China-based manufacturing will help avoid sanctions from the Chinese government amid the US-China trade war, where the US imposed 25 percent import tariffs on steel and 10 percent on aluminium, and China slapped US exports with matching retaliatory sanctions.

"And the competition is getting more and more fierce". Tesla's existing plant in Fremont, Calif., is ramping up to produce 500,000 annual capacity.

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.

"With the resources here, I think we can build the Shanghai Gigafactory in a record time", Musk said. Musk wrote on Twitter last Monday, replying to a Chinese Tesla owner who had volunteered to deliver a Tesla vehicle to a new owner.

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