Tesla enters into agreement with Chinese lenders for Gigafactory

Tesla cars at a port in Shanghai. The US electric carmaker is popular in China- the world's biggest car market- but Chinese brands are catching

Tesla enters into agreement with Chinese lenders for Gigafactory

Tesla has secured loans from Chinese banks to fund the electric auto company's "gigafactory" in Shanghai, which will help it speed up production of its "mass-market" Model 3.

The fresh borrowing follows Tesla's largest-ever debt payment last week.

The electric vehicle maker disclosed that it has signed a syndicated loan agreement with local branches of banks including China Construction Bank, Agricultural Bank of China, Industrial and Commercial Bank of China, and Shanghai Pudong Development Bank.

The company, which is backed by Chinese tech giants Baidu, Tencent and JD.com, said in a statement Tuesday that it was dropping the plans after posting losses of 9.6 billion yuan in 2018 while generating revenue of 5.0 billion yuan.

More importantly, building its vehicle in China will help USA -based Tesla avoid steep import tariffs, so its vehicle can be sold for less and be more competitive. For dollar-denominated loans, the rate is 1% more than Libor.

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Tesla will make its Model 3 sedans at the factory, initially targeting 3,000 cars a week before ramping up annual production to 500,000.

Retail sales of sedans, sport utility vehicles, multi-purpose vehicles and minivans fell 18.5% to 1.19 million units last month, according to the China Passenger Car Association Friday. - The Shanghai factory will allow the electric-car manufacturer to dodge the China-US tariff crossfire and can sell directly to the Chinese buyers.

In July 2018, China raised tariffs on USA autos another 25 percent, (from 15 percent to 40 percent) amid ongoing trade tensions in response to the Trump administration's tariffs on $200 billion worth of Chinese goods. Construction of the plant began on Jan 7 and it is scheduled to start mass production by 2020, delivering 250,000 cars annually.

Manufacturing locally is expected to help Tesla avoid some of the impact of trade tensions between the United States and China, as well as reduce its production costs.

The new factory would double the size of Tesla's global manufacturing capabilities, Reuters said.

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