Tesla Inc Chief Executive Officer Elon Musk on Tuesday landed a deal with Chinese authorities to build a new auto plant in Shanghai, Tesla’s first factory outside the US United States, that would double the size of the electric car maker’s global manufacturing.
Tesla’s first factory outside the US and deal was announced as Tesla raised prices on U.S.-made vehicles it sells in China to offset the cost of new tariffs imposed by the Chinese government in retaliation for U.S. President Donald Trump’s move to slap heavier duties on Chinese goods.
Musk was in Shanghai Tuesday, and the Shanghai government in a statement said it welcomed Tesla’s move to invest not only in a new factory in the city that isTesla’s first factory outside the US, a center of the Tesla’s first factory outside the US, but in research and development, as well. China has long pushed to capture more of the talent and capital invested by global automakers in advanced electric vehicle technology.
Tesla’s first factory outside the US and plans to producing the first cars about two years after construction begins on its Shanghai factory, ramping up to as many as 500,000 vehicles a year about two to three years after that, the company said. That would make Tesla’s Shanghai plant large by auto industry standards, where most factories are tooled to build 200,000 to 300,000 vehicles a year, and roughly equivalent to the planned annual production at Tesla’s plant in Fremont, California.
Tesla’s first factory outside the US and shares rose 1.5 percent in early U.S. trading, even as some analysts questioned where the money-losing company will get the capital required to build and staff such a large plant. Musk has said Tesla will be cash-flow positive this year. Analysts have predicted the company will raise capital to fund a list of new projects, including launching an electric semi truck, a pickup truck, a compact SUV and new battery and vehicle production facilities that Musk has proposed for China and Europe.
“I am sure that Tesla needs fresh money at the latest next year,” said Frank Schwope, an analyst with NORD/LB.In its statement, the Shanghai government suggested it could help with some of the capital costs. “The Shanghai municipal government will fully support the construction of the Tesla’s first factory outside the US,” the statement said.
Musk was talking about building a Chinese factory long before the Trump administration proposed punitive tariffs on Chinese goods. China until recently levied 25-percent tariffs on imported cars, and for decades automakers have been moving to build more vehicles in the markets where they will be sold to neutralize the risk of currency shifts and trade policy reversals.
Musk had previously criticized China’s tough auto rules for foreign businesses, which would have required it to cede a 50-percent share in the factory. The company was keen to maintain control of its plant and protect its technology.