Tesla Breaks Ground On $5-Billion U.S. Car Factory In China

Tesla Breaks Ground On $5-Billion U.S. Car Factory In China

Tesla Breaks Ground On $5-Billion U.S. Car Factory In China

At a ceremony at the site of the plant on the outskirts of Shanghai, Chief Executive Elon Musk joined the city's mayor and other local government officials to formally begin construction of a factory that Tesla has said will cost around $2 billion.

Whether Tesla will pursue a capital raise for the new factory remains a matter of speculation.

The $5 billion investment comes at a tenuous time in relations between the US and China.

The factory in Shanghai will produce "affordable versions of 3/Y for Greater China", Musk said on Twitter before the groundbreaking ceremony, adding that higher-priced models would be built in the US.

Tesla secured the site for its 500,000 vehicle capacity plant in October and has already begun hiring staff and starting procurement for building materials.

Shares in Chinese suppliers to Tesla, including Tianjin Motor Dies Co Ltd and VT Industrial Technology Co Ltd, rallied on Monday after Musk's tweets. "All Model S/X & higher cost versions of Model 3/Y will still be built in U.S. for WW market, incl China".

A local Chinese plant may be crucial for Tesla, which is struggling to stave off a potential dip in demand in the US, its biggest market, after reductions in federal tax credits for EVs.

Tesla was the first foreign auto maker to take advantage of a recent rule change allowing foreigners to own their China business, instead of having to work with Chinese partners as previously required.

Bloomberg reports that the factory will be capable of producing 5,00,000 vehicles per year, which would double Tesla's targeted production.

Higher-priced models will be built in the USA for export to China, he said.

Domestic production would help shield Tesla against import duties as the USA and China find ways to wriggle out of the tariff quandary. The Shanghai plant is created to make another 500,000 cars annually-a massive step up for a company that sold fewer than 14,000 cars in China in the first nine months of 2018, according to LMC Automotive, which tracks the auto market. The country's slowing economy and its trade war with the United States have severely impacted the auto industry.

As the company's troubled ramp-up of existing Model 3 production showed, Tesla is in dire need of more manufacturing space than the Fremont factory affords. In October of past year, the company paid about $140 million to secure more than 200 acres of land for the planned factory.

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