Why Tesla’s Decision to Build Cars in China makes Sense?

Tesla Gigafactory 1

Tesla CEO Elon Musk closed a deal today with Chinese authorities to build Tesla’s first factory outside United States. Tesla’s Gigafactory 3 will be built at Lingang near Shanghai’s free-trade zone. The plant is expected to manufacture 500,000 vehicles a year, effectively doubling Tesla’s current production capacity.

Why China?

  1. Tesla is running out of space in its production facility in Fremont, California. With per week production rate climbing over 7000 cars per week, there is very little room for Tesla to increase production in its current facilities in United States

  2. China is the second largest auto market for Tesla after United States.

  3. Tesla currently sells Model S and Model X  China. Due to customs and other tariffs, Tesla’s flagship vehicles cost 50% more in China when compared to US pricing.

  4. Despite the cost disadvantage, Chinese love Tesla

  5. In 2017, Tesla doubled its sales in China to over $2 billion, after tripling sales in 2016 compared to the year before.

  6. Demand has remained robust since the time Tesla entered China in April 2014. Building a plant in China will bring down the price Tesla cars in China, further increasing demand.

  7. With production facilities in United States nearing max output, Tesla needs new plants.

  8. China is the largest auto market in the world and the government is aggressively incentivising EV sales in the country.

  9. Building a factory in China is the best way to slip through the ongoing trade war between China and United States.

  10. China ticks all the boxes for Tesla to start production


Now read about why I wrote on June 20th, 2018 that

To know more about Tesla’s moves in China, please read my article Will Tesla’s Next Gigafactory be in China? published on June 20th, 2018.

Here is the full statement from Tesla

“Last year, we announced that we were working with the Shanghai Municipal Government to explore the possibility of establishing a factory in the region to serve the Chinese market. Today, we have signed a Cooperative Agreement for Tesla to start building Gigafactory 3, a new electric vehicle manufacturing facility in Shanghai.

We expect construction to begin in the near future, after we get all the necessary approvals and permits. From there, it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers. Tesla is deeply committed to the Chinese market, and we look forward to building even more cars for our customers here.

Today’s announcement will not impact our U.S. manufacturing operations, which continue to grow.”