Tesla Advances China Push With 2019 Shanghai Production Goal

(Bloomberg) -- Tesla Inc. plans to start production in China in the second half of next year, the city of Shanghai said, as the U.S. electric-car maker advances its push in the world's largest auto market.

The mayor of the city, Ying Yong, visited the project site in the Lingang development zone in southeastern Shanghai and encouraged Tesla to accelerate construction, according to a statement on the city's WeChat social media account Thursday. The plant, dubbed Gigafactory 3, will be the biggest ever foreign-invested manufacturing project in Shanghai. A Tesla representative didn't have an immediate comment.

The Palo Alto, California-based company has secured more than 200 acres of land for the China factory, which is expected to cost several billion dollars to build. Tesla's first overseas plant will help the electric-car maker avoid some of the risks involved with importing vehicles, such as higher tariffs caused by the trade tensions between China and the U.S.

While China is Tesla's biggest market after the U.S., volumes in the country have been limited because the company has had to rely on imports. The 40 percent duty that China levies on cars brought from the U.S. has had an impact on sales, the company said when reporting third-quarter earnings in October.

The tariff has left Tesla's models at a pricing disadvantage against local electric-car rivals such as BYD Co., while new Chinese entrants including NIO Inc. and Xpeng Motors are also racing to win over customers before Tesla starts its full-scale push in the country.

Click here to read a QuickTake on electric cars in China

At the same time, the Chinese car market is headed for its first drop in at least two decades as economic headwinds, the trade war with the U.S. and slumping stock prices weigh on consumers' appetite to buy new vehicles.

New-energy vehicles -- which include battery-powered, plug-in hybrid and fuel-cell automobiles -- are bucking the trend. Sales of these models reached 777,000 units last year and could surpass 1 million in 2018, according to the China Association of Automobile Manufacturers. The government's target is 7 million vehicles a year by 2025.

Chief Executive Officer Elon Musk said in October that Tesla was striving to start production of its Model 3 vehicle in China next year. The company has also started to advertise for employees for the new facility.

Shanghai authorities are helping Tesla obtain loans from some of the biggest Chinese banks to fund the new plant, people familiar with the matter said in August. Tesla may borrow about $1.3 billion locally for the facility, RBC Capital Markets analyst Joe Spak said last month.

--With assistance from Dana Hull.

To contact Bloomberg News staff for this story: Jing Jin in Shanghai at jjin32@bloomberg.net;Ville Heiskanen in Singapore at vheiskanen@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Lena Lee

©2018 Bloomberg L.P.

With assistance from Editorial Board