Tesla Expands into China

On Tuesday, July 10th, 2018, CEO Elon Musk finalized an agreement with the Shanghai government to open Tesla’s first factory outside the U.S., having the potential to build half a million cars a year. The investment size wasn’t revealed, nor were the terms of the agreement. According to a Shanghai government official, any sharing of technology with Tesla would be “subject to negotiations.”

Having access to China is a solution for Tesla but the CEO is entering with a weakened position. Tesla signed an electric vehicle investment agreement with Shanghai’s Lingang Management Committee, the Lingang Area Development Administration and the Lingang Group. This is where a technology transfer could happen, even without a joint venture company.

The Shanghai government suggested it could mount up capital and help Tesla build its factory to get it running as soon as possible. At its current burn rate, Tesla doesn’t have the capital at its immediate disposal. According to a Tesla spokesperson, construction is expected to start soon, after it gets all the necessary permits and approvals. It would take two years before cars start to roll off the assembly line and then another two to three years to ramp up to full capacity.

This big move from Tesla comes with a big price tag, however. Monthly unit sales of new-energy vehicles in China have been increasing over the past years and this poses a threat for Tesla. Beijing has supported the cause of new energy vehicles and backed the part with policies and grants to make China the largest market for electric cars. However, it has not produced a titleholder of its own and Tesla may be the appropriate solution.

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