Tesla an­nounces ‘mile­stone’ with Shang­hai fac­tory

Calgary Herald - - FINANCIAL POST - JOE McDON­ALD

BEI­JING Elec­tric auto brand Tesla Inc. said it signed an agree­ment Wed­nes­day to se­cure land in Shang­hai for its first fac­tory out­side the United States, push­ing ahead with de­vel­op­ment de­spite mount­ing U.S.-Chi­nese trade ten­sions.

Tesla, based on Palo Alto, Calif., an­nounced plans for the Shang­hai fac­tory in July after the Chi­nese govern­ment said it would end re­stric­tions on full for­eign own­er­ship of elec­tric ve­hi­cle mak­ers to speed up in­dus­try de­vel­op­ment.

Those plans have gone ahead de­spite tar­iff hikes by Wash­ing­ton and Bei­jing on bil­lions of dol­lars of each other’s goods in a dis­pute over Chi­nese tech­nol­ogy pol­icy. U.S. im­ports tar­geted by Bei­jing ’s penal­ties in­clude elec­tric cars.

China is the big­gest global elec­tric ve­hi­cle mar­ket and Tesla’s sec­ond-largest after the United States.

Tesla joins global au­tomak­ers in­clud­ing Gen­eral Mo­tors Co., Volk­swa­gen AG and Nis­san Mo­tor Corp. that are pour­ing bil­lions of dol­lars into man­u­fac­tur­ing elec­tric ve­hi­cles in China.

Lo­cal pro­duc­tion would elim­i­nate risks from tar­iffs and other im­port con­trols. It would help Tesla de­velop parts sup­pli­ers to sup­port after ser­vice and make its ve­hi­cles more ap­peal­ing to main­stream Chi­nese buy­ers.

Tesla said it signed a “land trans­fer agree­ment” on a 84-hectare site in the Lin­gang dis­trict in south­east­ern Shang­hai.

That is “an im­por­tant mile­stone for what will be our next ad­vanced, sus­tain­ably de­vel­oped man­u­fac­tur­ing site,” Tesla’s vice-pres­i­dent of world­wide sales, Robin Ren, said in a state­ment.

Shang­hai is a cen­tre of China’s auto in­dus­try and home to sta­te­owned Shang­hai Au­to­mo­tive In­dus­tries Corp., the main lo­cal man­u­fac­turer for GM and VW.

Tesla said ear­lier that pro­duc­tion in Shang­hai would be­gin two to three years after con­struc­tion of the fac­tory be­gins and even­tu­ally in­crease to 500,000 ve­hi­cles an­nu­ally.

Tesla has yet to give a price tag but the Shang­hai govern­ment said it would be the big­gest for­eign in­vest­ment there to date. The com­pany said in its sec­ond-quar­ter in­vestor let­ter that con­struc­tion is ex­pected to be­gin within the next few quar­ters, with sig­nif­i­cant in­vest­ment com­ing next year. Much of the cost will be funded with “lo­cal debt” the let­ter said.

Tesla’s US$5 bil­lion Ne­vada bat­tery fac­tory was fi­nanced with help from a US$1.6 bil­lion in­vest­ment by bat­tery maker Pana­sonic Corp.

An­a­lysts ex­pect Tesla to re­port a loss of about US$200 mil­lion for the three months end­ing Sept. 30 fol­low­ing the pre­vi­ous quar­ter’s US$742.7 mil­lion loss. Its CEO Elon Musk said in a Sept. 30 let­ter to U.S. se­cu­ri­ties reg­u­la­tors that the com­pany is “very close to achiev­ing prof­itabil­ity.”

Tesla’s es­ti­mated sales in China of un­der 15,000 ve­hi­cles in 2017 gave it a mar­ket share of less than three per cent.

The com­pany faces com­pe­ti­tion from Chi­nese brands in­clud­ing BYD Auto and BAIC Group that al­ready sell tens of thou­sands of hy­brid and pure-elec­tric sedans and SUVs an­nu­ally.

Un­til now, for­eign au­tomak­ers that wanted to man­u­fac­ture in China were re­quired to work through state-owned part­ners. For­eign brands balked at bring­ing elec­tric ve­hi­cle tech­nol­ogy into China to avoid hav­ing to share it with po­ten­tial fu­ture com­peti­tors.

The first of the new elec­tric mod­els be­ing de­vel­oped by global au­tomak­ers to hit the mar­ket, Nis­san’s Syl­phy Zero Emis­sion, be­gan rolling off a pro­duc­tion line in south­ern China in Au­gust.

Lower-priced elec­tric mod­els from GM, Volk­swa­gen and other global brands are due to hit the mar­ket start­ing this year, well be­fore Tesla is up and run­ning in Shang­hai.

NG HAN GUAN/THE AS­SO­CI­ATED PRESS FILES

Palo Alto, Calif.-based Tesla says it will open its first fac­tory out­side the U.S. after it se­cured land in Shang­hai. The plans have pro­ceeded de­spite the U.S.-China trade war.

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