Tesla has just concluded a preliminary agreement with the Shanghai government to build an assembly plant in China. The new factory will complement its current sole plant, located in California.
The Shanghai government issued an announcement regarding the agreement, as reported by the Bloomberg website. The announcement specifies that the new plant should have an annual production capacity of 500,000 units. Bloomberg has previously reported that Elon Musk was in the city of Shanghai to take part in an event there.
Tesla currently produces all of its vehicles at its factory in Fremont, California. The company has made headlines in recent months regarding the challenges it has faced in reaching a rate of production that would allow it to reduce waiting times on orders and, eventually, ensure its profitability.
The new factory in China will allow Tesla to greatly increase its rate of production and facilitate access to markets outside of North America. Tesla has previously announced that it also plans to build an assembly plant in Europe. The company is expected to make an announcement to that effect toward the end of 2018.
A logical move
Establishing a production facility in China has been part of Tesla’s plans for more than a year, and it’s easy to see why. In addition to the reasons cited above, there’s also the matter of the reduced production costs that would result from setting up production locally. And then of course, the company is undoubtedly taking into account the trade war brewing between the U.S. and China, which has seen the Asian country slap tariffs on a number of products coming from America. According to Bloomberg, Tesla has been obliged to significantly raise prices on its S and X models in what is after all its second-biggest global market.
The Chinese government estimates that sales of electric, hybrid and fuel-cell vehicles, which total 777,000 units in 2017, could rise above the 1 million mark this year. Its target for 2025? 7 million. Tesla currently holds 3% of the market in this segment, so it’s easy to see why it is intent on creating a position for itself in this highly lucrative market.