Tesla Close To Signing Agreement To Set Uap A Factory In China

Tesla Inc. TSLA AmazonBlomst / Pixabay

Tesla has long wanted to make a place in China, the world’s largest auto market, and it seems this is not a far-fetched dream anymore. The company is reportedly working on an agreement to set up a factory to build vehicles in China, says Bloomberg, citing people familiar with the matter.

Tesla will need a local partner

If successful in signing the agreement, Tesla will be able to set up facilities in the Lingang development zone, the report said, adding that the agreement might be announced as soon as this week. Though the negotiations are private, it they are said to be in the final phase. A factory in China would open a huge opportunity for the California-based electric car maker to take its market to a whole new level.

According to Chinese law, Tesla will need to find at least one local partner to set up a joint venture to carry out production in China. So far, there is no information regarding who that partner be. As of now, there have been no comments from Tesla on the matter.

Tesla made big money in China last year, generating revenue of more than $1 billion. However, huge tariffs on imported cars limited the company’s customer base in China’s highly subsidized electric vehicle market. Thus, by setting up a factory in China, Tesla would be able to avoid the customary 25% import tariff on vehicles.

Factory in China was always in the cards

Speculations regarding such a deal started in March when Tencent purchased a 5% stake in the U.S. firm. Several events also suggested the possibility of such an agreement. For instance, several reports last year talked of Tesla executives visiting the Suzhou region, where they reportedly spoke with potential manufacturing partners. A few months ago, there were reports suggesting the factory would be in Guangdong.

In 2016, Tesla CEO Elon Musk also talked of plans to secure a location and a local partner to set up a manufacturing facility in China by that year. However, no official words came after that. It must be noted that this recent Bloomberg claim comes about a month after Musk had a meeting with China’s Vice Premier.

Producing battery cells for the Model 3

Meanwhile at its Nevada Gigafactory, which is still under construction, Tesla has begun producing battery cells for the upcoming Model 3. This is an important milestone for the company, as it prepares it to launch its much-anticipated electric vehicle for the masses. The information was provided by Tesla CTO JB Straubel during a presentation over the weekend. He detailed a progress report on how the company is going ahead with the vehicle’s production plan, notes Electrek.

“This is where we’re at today with this project; it’s still got a little ways to go. But we’ve started production of Model 3 cells actually right now, so we’re starting to ramp up those cell manufacturing lines and crank this up as we begin to ramp Model 3,” Straubel said.

A sharp rise of $4.90 to $374.70 was seen in Tesla shares in after-hours trading on Monday. Year to date, Tesla shares are up more than 73%, while the benchmark S&P 500 index saw a rise of 9.93% in the same duration.

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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 amanjain@valuewalk.com

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