How does the official delivery of the domestic Tesla Musk knock on China’s open door?

Shanghai Super Plant is fully in production and delivery mode. Five years into the Chinese market, Tesla has the most important moment. On December 30th Tesla delivered the Chinese-made Model 3 to 15 employees at its Shanghai Super plant, marking the shanghai super plant’s full entry into production and delivery mode. It is hard to imagine that the Model 3 only entered the Chinese market in February this year, less than a year after Tesla completed the “domestication” of the Model 3, which has the power of Tesla’s Silicon Valley spirit behind it and the firm determination of China’s auto industry to open up to the outside world.

How does the official delivery of the domestic Tesla Musk knock on China's open door?

China made Model 3 delivery site. Photo: Tesla Official Weibo

“I want to make Tesla’s Shanghai plant a global example. “On January 9, this year, Premier Li Keqiang’s first foreign affairs event at the beginning of the new year was scheduled to take place in Ziguangge, Zhongnanhai, and Tesla founder Elon Musk said at the meeting that Tesla would strive to build the Shanghai plant into one of the most advanced factories in the world, while localizing its products in accordance with Chinese market demand. Better to achieve mutual benefit and win-win situation.

What is a global paradigm? When Musk teamed up with “infrastructure mania”, the shanghai superfactory was reduced sharply from 30 months to 485 days, and its production line costs were 65% lower than in the U.S., reflecting China’s manufacturing advantages.

As the first foreign-owned domestic enterprises, the official completion of the Shanghai super factory marks the domestic new energy vehicle industry into an inflection point stage: on the one hand, Tesla into China to drive the common progress of the domestic new energy vehicle industry, on the other hand, represents the determination of China’s automotive industry to open up to the outside world. The Chinese market welcomes more foreign-funded enterprises to do business in China.

Shanghai Super Factory “Acceleration”

Also producing model 3, the Shanghai Super Plant has improved significantly in production line construction after learning from the climbing experience of the Fremont, California, plant.

The Model 3 was launched by Tesla in April 2016, when Musk announced that the Model 3 would sell for $35,000, far more than the Model S and Model X, and get a lot of subscribers. But the Model 3’s capacity has been slow to climb because of supply problems with Panasonic’s batteries, coupled with more automation than ever before, with Tesla’s target of 5,000 Model 3s per week by the end of December 2017. But it won’t actually be reached until July 2018.

Berstein, a Wall Street investment bank, has questioned Tesla’s automated production, arguing that while automated production can save people money, it will cost a lot of capital, which has led Tesla to make far less money from automated production.

“The Japanese approach is to get the process right and then introduce robots, which is the opposite of Musk’s. Max Warburton, an analyst at Berstein, estimates that Tesla will spend about $2 billion on the new Model 3 production line, which is equivalent to Tesla’s overall investment in its Shanghai superplant.

In response, Musk also admitted on Twitter that “over-automation at the Tesla plant was a mistake.” It was my mistake, to be exact. Humans are undervalued. “

To speed up production of the Model 3, Tesla had to reduce the automation of its production lines and increase its production capacity by increasing staff. However, that led to a 30 percent increase in Tesla’s 2018 workforce, outstripping the company’s capacity, so Musk announced 7 percent of the job cuts earlier this year, leaving Tesla with only the most critical temporary workers and contractors.

After learning a series of lessons, shanghai super factories are building much faster than expected. After 10 months of construction, the current Shanghai Super Factory (Phase I) has four workshops of stamping, body, coating and assembly, and is expected to be put into operation by the end of this year.

In addition to the speed of construction, the Shanghai Superplant has also significantly reduced construction costs, which Tesla says are 65 per cent lower than in the US (in terms of capital expenditure per unit capacity).

In addition, Tesla’s Model Y production line, which is being installed at its Fremont, California, plant, is expected to cost 50 percent less than the current Model 3 production line in the United States, after learning from the experience of building the Shanghai Super plant.

Model 3 Capacity Climbing

For Tesla, the shanghai super plant’s primary significance is to help the company’s total production reach 500,000 vehicles. According to Musk’s forecast, the Shanghai Super plant is expected to produce 3,000 Model 3s per week, plus 7,000 units at its Fremont, California, plant, and by the end of the year Tesla will have achieved its model 3-week production target of 10,000.

Based on the model 3’s successful build-up, Tesla earlier this year expected to produce 500,000 Model 3 strains between the fourth quarter of this year and the second quarter of 2020.

In fact, as early as May 2016, Musk said he wanted Tesla’s production capacity to increase to 500,000 in 2018 and 1 million in 2020, but tesla’s capacity this year is only 400,000 vehicles due to poor climbs.

Now, with the completion of the Shanghai Super plant, Tesla’s production capacity will be directly increased. At present, the Shanghai Super Plant has completed only one phase of construction, with an estimated annual production capacity of 150,000 Model 3, but the plant will also produce Model Y as the second phase of construction begins, when the annual production capacity is expected to reach 500,000 vehicles.

When the Shanghai Super plant goes into production, the domestic version of the Model 3 will be exempt from import duties and even enjoy new energy subsidies, which will help Tesla further open up the Chinese market. Tesla’s entire range of models in China has been exempted from the purchase tax, which accounts for 10% of pre-tax vehicle prices, which is good news for Tesla.

But while Musk continues to reiterate his target of 360,000 Deliveries to Tesla this year, the Shanghai Super plant will struggle to help – the second batch of domestic Model 3 will be delivered before the Spring Festival, meaning the domestic Model 3 will not contribute to the company’s results until at least the first quarter of next year.

First Beneficiaries of China’s Auto Opening

To the outside world, Musk is looking at the Chinese market, which is indeed a very important source of revenue for Tesla. In the first three quarters of this year, Tesla’s auto sales in China were $2.318 billion, up 48 percent from $1.445 billion a year earlier. In the third quarter, Tesla’s sales in China reached $669 million, second only to the U.S. continued tesla’s second-largest market. In its just-released third-quarter results, Tesla even predicted that China would become the model 3’s biggest market.

As a result, Minister of Industry and Information Technology Miao Wei said at a high-level forum on China’s development in March that Tesla was one of the first direct beneficiaries of China’s further expansion of the opening of cars. On April 17 last year, the National Development and Reform Commission announced a specific timetable for the development of the automotive joint venture stock ratio, determining that the automotive industry will be opened in a transitional period, from the abolition of the foreign-owned share ratio limit for special vehicles and new energy vehicles in 2018, to the elimination of the foreign-share ratio limit for commercial vehicles in 2020, and to the lifting of the limit on foreign-funded shares in passenger cars in 2022. The NDRC said the auto industry would lift all restrictions through a five-year transition period.

Subsequently, on June 28, the National Development and Reform Commission and the Ministry of Commerce jointly issued the “Special Measures for The Administration of Foreign Investment Access (Negative List) (2018 Edition)”, which added “except for special vehicles and new energy vehicles” on the basis of the original provision signed that “the ratio of Chinese shares in vehicle manufacturing is not less than 50%”, Clearing the way for Tesla’s investment in China.

But it’s easy to overlook that China’s new energy car industry also needs Tesla to get into China. As the global leader in the new energy vehicle industry, Tesla has a clear advantage in the “three electric” (electric drive, battery, electric control), is expected to reverse the new energy vehicle enterprises, including new forces, including rapid progress, especially in the subsidy de-slope new energy vehicle sales slump in time, Tesla’s domestic impact is greater than expected.

Shanghai super factory settled in Port, Lingang is also interested in building a new energy vehicle industry cluster around Tesla, the formation of an advanced upstream and downstream industrial chain, radiation port new area industry. On September 24, Lingang New Area signed a total of 24 key projects on smart net-linked new energy vehicles, including four types of manufacturing, application, service and functional platforms, involving a total investment of nearly 8 billion yuan, including St. Gobain Safety Glass (China) Co., Ltd., a supplier of supporting glass for Tesla.

In return for China, Tesla has pledged to start generating tax revenues by 2023, paying 2.23 billion yuan ($323 million) a year in taxes and investing 14.08 billion yuan ($2 billion) in its Shanghai super plant over the next five years.

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