Tesla unveils Shanghai factory plans amid US-China trade row

SHANGHAI (AFP) – Tesla unveiled plans on Tuesday to build a factory in Shanghai to dramatically increase its production capacity, with boss Elon Musk making his electric-car company’s biggest overseas move yet just as a US-China trade battle heats up.

Musk said the plant, which has been in the works for a year, would eventually have an annual production capacity of 500,000 cars, and he hoped it would be “completed very soon.”

The announcement of the new Tesla venture comes as US companies face pressure from US President Donald Trump to keep manufacturing jobs at home, and as Beijing and Washington spar over terms of a trade in a fight that only last weekend significantly hiked the price of imported Teslas sold in China.

Analysts noted that the announcement included no details about how much the plant would cost or how it would be financed.

China already is the world’s biggest electric car market and is expected to grow further due in part to favourable government policies for the environmentally friendly vehicles.

A visitor holds an umbrella as she looks at a Tesla Model X car on display in Beijing. – AP

“Shanghai will be the location for the first Gigafactory outside the United States,” Musk said in a statement released by the company and Shanghai’s government.

The plant, located in the Lingang district, “will be a state-of-the-art vehicle factory and a role model for sustainability. We hope it will be completed very soon.”

A Tesla spokesperson said the company expects construction to begin “in the near future,” with production beginning roughly two years later and another three more years before it reaches full production.

“Tesla is deeply committed to the Chinese market, and we look forward to building even more cars for our customers here,” the spokesperson said.

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

Anticipation about a potential big Tesla investment had bubbled over the past year. The company last month told shareholders it was working with officials in Shanghai to establish a plant to build electric cars and battery packs intended for China.

But the announcement comes at a sensitive time US-Chinese trade relations.

Trump has for years slammed what he describes as Beijing’s underhand economic treatment of the United States, with the US trade deficit in goods with China ballooning to a record USD375.2 billion last year.

Following months of tension, start-stop negotiations and some Chinese concessions, the US on Friday pulled the trigger on 25 per cent duties on about USD34 billion in annual imports of Chinese machinery, electronics and high-tech equipment, including autos, computer hard drives and LEDs.

The move triggered immediate and dollar-for-dollar retaliation by China. Those tariffs raised the price on Tesla Model S to USD142,000 from about USD115,000, according to 24-7 Wall Street.

“It was long a plan and expectation that Tesla would open a plant in China,” said Efraim Levy, an analyst at CFRA Research. “It happens to be that now is when you have the trade altercation going on. I think it’s really coincidental.”

Levy said hopefully the trade spat would be resolved by early next year, but “by putting a plant in China it prevents future tariff increases from being impactful.”

China typically requires foreign automakers to set up joint ventures with Chinese firms when establishing manufacturing plants. But the joint statement described the plant as a Tesla “wholly owned Gigafactory.”

Analysts noted that the announcement did not estimate the cost of the plant, or how it would be financed.

A note from 24-7 Wall Street said the USD2.7 billion in cash on Tesla’s balance sheet at the end of the first quarter hardly seems like enough,” but the company likely would not have trouble raising funds in China.

Tesla announced in June it was cutting nine per cent of its workforce, or almost 4,000 jobs, in an effort to boost profitability. Musk said at the time the job cuts would not affect an ambitious build-out program of its Model 3 sedan that has been closely monitored by Wall Street.

Domestic and foreign automakers have been racing to grab a piece of the Chinese electric-car sector, which is expected to continue to grow rapidly as the government pushes cleaner technologies, partly to help combat chronic air pollution.