Tesla To Build Chinese Factory When Demand Hits “Critical Mass”

Tesla stockBlomst / Pixabay

Tesla has finally revealed when it will make sense for it to construct a factory in China. Tesla CTO JB Straubel, who was at the International Transport Forum in Leipzig last week, said when local demand reaches “critical mass,” the automaker will build a factory in China, according to China Daily.

Speculations about Tesla China factory

Where that threshold lies exactly cannot be said with certainty, but the second-biggest group of prerders for the upcoming Model 3 came from Chinese customers. The automaker is ramping up its production capacity for the Model 3, and recently, Tesla’s John McNeil suggested a Chinese factory could be part of the ramp.

A Chinese factory could come around 2019, CEO Elon Musk suggested last year. There are reports that Tesla has already searched for factory locations there. Tesla’s journey into China has been full of problems, as it missed regional sales targets and cut jobs in 2015. If the U.S. firm expands there, it will have to face a variety of risks.

If Tesla’s California factory remains the center of Model 3 production, then Chinese customers’s wait will be longer than that of U.S. buyers. This can be seen as a major threat to the EV firm as all customers may not want to wait and could turn to local competitors.

China a tough market to crack

If Tesla builds a factory in China for the purpose of forestalling that threat, it will face another set of problems. Foreign companies that wish to do business in China are required to work with local partners and share technology.

Other global manufacturers believe it is important to form such alliances as it helps them avoid significant import duties that lead to higher prices for cars made outside the country. Tesla plans to explore partnerships with several Chinese automakers, but reportedly, it has not yet reached an agreement.

Meanwhile, China is ramping its own electric car sector quite aggressively, and the government there is offering large subsidies to help solve the air pollution crisis there. At present, the most prominent Chinese player is NextEV, but Foxconn and Tencent are also in the competition.

On Friday, Tesla shares closed up 2.36% at $220.28. Year to date, the stock is down by over 7%, while in the last year, it is down by over 11%. the stock has a 52-week high of $286.65 and a 52-week low of $14.05.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at [email protected]

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