“China Speed” at Tesla’s Shanghai Super plant

In the early hours of this morning, Beijing time, Musk took off from Los Angeles on his private jet Gulfstream G650, and was on his way to a China Eastern Boeing 777 on the same route, initially because Musk’s G650 took off late, so he has been closely behind. But Musk’s private jet flew higher and “full-fire”, before it took him to surpass the Boeing 777 and finally arrive in Shanghai.

But Musk’s trip to Shanghai was even more exciting as he marveled at “it’s good to have money”, attending the mass delivery ceremony of the chinese model 3 at the Gigafactory 3 and the launch ceremony of the model Y project.

On the afternoon of January 7, Tesla officially opened a mass delivery ceremony at its Shanghai Super factory, and on December 30, 2019, Tesla delivered 15 cars, all of which were employees of Tesla China, this time for regular users.

Since the Shanghai Super Plant’s trial operation in October, it has now reached a capacity of 1,000 vehicles per week, initially meeting the requirements for large-scale mass production.

(Drone shoots Shanghai Super Factory “Partial Parking Inventory” in December.Source:Chao Zhou

In fact, the domestic version of the Model 3 to achieve large-scale delivery is not enough to surprise people, after all, the Shanghai super factory”, “God Speed” has long been known to all, the model Y project officially launched, is after the Model 3 price reduction is another major good news.

On the one hand, Musk had no intention of relying on model S/X as the main force for development, although will not stop production, but it is clear that its high price is not enough to support his “renewable energy planning blueprint”, more “easy” Model 3/Y is. On the other hand, the global SUV market has seen explosive growth in recent years, with sales of 30 million SUV models in 2018 alone, so the market potential of SUV models is full. No wonder porsches, Bentleys, Rolls-Royceand and other luxury brands have joined the SUV camp, and even Ferrari has announced that it will join the SUV model.

The previous domestic version of model Y has quietly updated its page on its website and announced the price, suggesting musk’s promised second-quarter delivery in 2020 may not be a problem.

(The same statement as when the model 3 domestic version was just announced at the time)

The Model Y is exciting, in addition to the SUV model is more popular and it is a Tesla, the most important thing is that the model and model 3 are produced on the same platform, and can share more than 70% of the spare parts. This makes it doubtful that, given the current cost-control of the Model 3, the Model Y may be cheaper, and with its excellent performance and space, it may be more cost-effective or, as Musk would like, to sell more than other Tesla models combined or even double. You know, Tesla accounts for 60 percent of new energy vehicles sold in the U.S. in 2018.

In addition, Musk said almost sobs on the spot: “In the future, the Shanghai Super factory will not only produce Model 3/Y, I also hope to add to the production of other models.” In the future, there will be a separate Chinese design center to build cars suitable for the Chinese market. “

(Musk Live Dance)

In fact, whether the domestic Model 3 has come or the domestic Model Y is coming, are inseparable from the landing of the Shanghai Super Factory. While most people can think of two obvious factors why Tesla chose to build a plant in China: China’s huge market and prices are not subject to tariffs (and even subsidies), there are many stories behind these two factors.

That’s why Musk’s first words at the opening: “Thanks to the Chinese government!” “

China Speed

China is known as the “infrastructure mania” title, in addition to China in the construction of engineering to overcome many of the world’s problems, the most impressive is the “Chinese-style speed”, and for Tesla, who urgently need to expand the market, speed is everything.

On January 7, 2019, Tesla held a grand factory foundation ceremony on a field near the port of Pudong In Pudong, Shanghai.

On January 7, 2020, also in this area, Tesla officially opened a mass delivery at its already-built Shanghai Superplant.

From ruins to the completion of the first phase of the plant, to the opening of mass delivery, just 365 days, Tesla teamed up with China’s “masterpiece” to impress the world. Many foreign netizens commented: “This is to achieve in China, another place is not a play.” “

In fact, Tesla broke ground on January 7th, got acceptance permits in August and September, and in October received production qualifications from the Ministry of Industry and Information Technology, meaning it took only 10 months to get the production vehicle capacity from a wasteland to the factory.

Tesla’s Fremont plant in the U.S., by contrast, took more than two years to get from taking over the retrofit to the production of a production vehicle, and five years to reach a capacity of 1,000 vehicles per week, without the need to build a plant. Another Tesla plant, the Nevada Superplant 1, which mainly makes batteries and assemblies, reached an agreement in 2014 and went into production two years later, when the plant was only 14 percent of the total planned.

Behind the amazing speed of The Shanghai Super factory, infrastructure capacity is second to none, and the key is China’s multifaceted “efforts”.

At the end of the 20th century, China decided to introduce joint ventures to promote the development of the industry in order to solve the problem of backwardness in the automobile industry, but at the same time the country could not fully open its doors to the auto giants to enter the market at will, because to ensure the survival of the local automobile industry. So when China began introducing Chinese joint-venture car companies in 1984, its share ratio was set at 50:50.

Later, in the 1994 “Automotive Industry Policy” clearly stipulates that the proportion of Chinese shares in the joint venture, the Chinese side must not be less than 50%, this policy, although subsequently revised, but the limit of the proportion of only shares remains unchanged.

Decades have passed, China’s auto industry has a huge change, some car companies gradually mature technology, supply chain stability, stand firm, and some car companies do not think ahead, in the market competition gradually decline. At that time, the state protects domestic brands, but it is not possible to continue this model, because in order to truly promote the development of the entire industry, enterprises must be allowed to accept the real market “baptism.” Especially for new energy vehicle companies, from the subsidy decline and policy changes, it is not difficult to see that this change is already “in progress.”

On April 17, 2018, the National Development and Reform Commission announced: “The automotive industry will be opened by type, the foreign-owned share ratio limit for special vehicles and new energy vehicles will be lifted in 2018; Through a five-year transition period, the automotive industry will remove the restrictions altogether. “

On June 28 of the same year, the National Development and Reform Commission and the Ministry of Commerce jointly issued the Special Management Measures for Foreign Investment Access (Negative List) (2018 Edition), adding “except for special vehicles and new energy vehicles” on the basis of the original provision that “the ratio of Chinese shares in vehicle manufacturing is not less than 50%.”

This rule, in part, is even “tailored” for Tesla.

Tesla negotiated a partnership with Shanghai back in 2014, when Musk proposed two conditions: a wholly-owned plant and a change in registered products from automotive products to electronic consumer products. At that time, however, the first conditions were completely unattainable, so Ding Lei, then deputy head of Shanghai’s Pudong New Area, proposed a phased plan, but Musk did not accept it, and then replied to the Shanghai government: “The capacity of the North American plant has not yet fully been realized, and it will take five years to build a plant in China.” “

Shortly after the new policy was announced, on July 10, 2018, Tesla signed an agreement with the Shanghai Port Management Committee and the Port-of-Hong Kong Group to build a Tesla Super plant with a combination of research and development, manufacturing and sales capabilities in the Port-of-Hong Kong area.

As a result of this policy, the BMW Group subsequently issued a statement in 2019 that Brilliance Will sell a 25% stake to BMW, becoming the first “crab-eating” joint venture. That is to say, bmw and Brilliance will complete the equity adjustment after the country completely lifts the foreign share ratio limit for passenger cars in 2020, when “Brilliance BMW” will become “BMW Brilliance”.

Now that the country is planning to introduce “fish” to stimulate industry progress, it is clear that the financial problem needs to be addressed beyond the policy “tilt”. After all, Tesla was really poor at the time, years of losses combined with a lot of money to solve the capacity problem, and at one point even revealed that Tesla was pledging loans to U.S. factories.

In March 2019, Tesla received a $3.5 billion unsecured loan from the syndicate at a rate of 90 percent of the central bank’s annual benchmark interest rate. Tesla also signed a financing agreement with China Merchants Bank to provide a 5 billion yuan unsecured 12-month revolving loan at an interest rate of 90 percent of the central bank’s annual benchmark interest rate.

The money helped Tesla complete land purchases and plant construction, but it’s not over yet.

At the end of 2019, Tesla again agreed with a number of Chinese banks (Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Shanghai Pudong Development Bank, etc.) a new five-year loan of RMB10 billion, in addition to the 3.5 billion yuan in loans and interest paid. The remaining funds user plant continues to build and other Chinese business.

Tesla has now received as much as Rmb18.5bn in loans, far more than the previous projected construction costs at the Shanghai superplant (about Rmb14bn), and with tesla’s overall market capitalisation and capital position, it now has enough cash to boost its operations in China.

Of course, giving Tesla so many “concessions” is not simply to stimulate the development of the industry, but also two hands to consider. Many of the indicators for Tesla’s Shanghai plant, which has 50 years of use rights, are detailed in the port-bound area. Tesla is being ordered to invest Rmb14.08bn over the next five years and to generate more than Rmb75bn by the end of 2023 and generate rmb2.23bn in annual tax revenue. Otherwise, Tesla will have to hand over the land, but will receive appropriate financial compensation for land leases, buildings and equipment.

It can be said that Tesla can be in China”, “all the way green light and rage”, in addition to its own influence and product strength is strong enough, can not be separated from the Chinese side to give “support.”

Made in China

China has a large population base and demand for cars is naturally high, so even with falling sales, it still has the world’s largest market for new energy vehicles. For Tesla, however, the number of sales to China has not been “expected” because, although China is Tesla’s second-largest consumer market in the world, sales in China actually account for only 20 to 30 percent of Tesla’s global sales.

The important reason for this result is one word – expensive.

In addition to tariffs, the most important factor affecting prices is the cost of production. Tesla’s U.S. production is subject to The U.S. “rules of the game”, resulting in a much higher labor cost than in China. In China, labor costs will be greatly reduced, according to Morgan Stanley, which is only about one-third of that of the Fremont, California, plant, according to Morgan Stanley. According to Tesla’s planned 10,000 employees, the cost savings could even boost profit margins to more than 30 per cent, almost matching Porsche’s.

In addition, another cost comes from the production process itself, the use of automation, the renewal of new technologies, management coordination mechanism changes, for the production enterprises, are closely related to costs. For example, when the first generation of sports cars Roadster, due to lack of experience and limitations of production methods, resulting in production costs even higher than the price of $20,000, and eventually Tesla had to “lose money.” Although the original Roadster sold for as much as $1 million on ebay, for Tesla, the capacity for mass production would determine the cost as long as it was a production company.

Tesla’s Shanghai Super plant, drawing on nearly a decade of Tesla’s production experience, the introduction of technologies such as highly automated robot production and the introduction of technologies such as warehouses on wheels (direct access to transport vehicles under the production line) on the under-vehicle production line, is optimized from production processes and equipment technology.

One of the two patents Tesla recently filed for, for example, is about the design of the in-car harness production, which was previously 3,000 meters long, and by model 3 it was reduced to 1500 meters, while the upcoming Model Y was only 100 meters. Thanks to the new design, Model Y’s harness installation may be changed from manual to robot installation, greatly improving efficiency and reducing production costs.

Another new patent is that Model Y will use an integrated punching and molding body process to streamline the process of stamping and reassembling individual parts in the past, downtostheted into a step, forming directly, and also reducing production costs.

In another Statement, Tesla Q3 reported: “The production cost (capital expenditure per unit) of the Model 3 production line at the Shanghai plant is 65% lower than at the U.S. plant.” “The words translate into human words are that for every car produced within the design capacity, equipment inputs and long-term maintenance inputs (fixed and non-expendable assets, excluding the materials used to produce cars) are down 65 percent from U.S. factories.

Also inspired by the construction of the Shanghai Super plant, Tesla also learned from the lessons learned when it accelerated the construction of the Model Y production line, which will cost 50 percent less in future Model Y production than at this stage.

In fact, these methods are not limited to the use of Shanghai super factories, but can also be gradually applied to U.S. factories, so another key factor affecting the production costs of Chinese factories is the Chinese suppliers.

First of all to get rid of an inherent “impression”, that is, “domestic – not reliable”, the author has visited some auto parts suppliers, asked such a question, they gave the answer is quite consistent: “In fact, it is not our technology can not reach, but Party A requirements are not so high, if you want to provide spare parts to the demanding Party A, if you want to provide spare parts for the high requirements of Party A, We have to invest a lot of money in research and development, which will lead to higher costs, of course, if the demand is high, we can also reduce the cost of high-quality spare parts, but at present, the largest sales, the highest profit is still the general standard of spare parts. “

Tesla’s requirements for spare parts, from the results of the world’s major crash testing agencies, is not difficult to see the high standards, the only doubt is whether Tesla in the search for Chinese suppliers can still maintain such standards. But one thing is certain, and that is, costs will be further reduced, Tesla originally had a lot of Chinese suppliers, now in Shanghai can not only save a lot of transportation costs, but also according to Musk’s previous “cost reduction” strategy, gradually more “cheap” Chinese suppliers to come in. Especially for the most expensive lithium-ion batteries, which were originally only provided by Panasonic, and which may be provided by lg and Ningde in the future, there is room for reduced costs.

Last year Musk said publicly: “By the end of 2020, all parts of the Model 3 will be fully domesticated.” “And the localization of spare parts is the country so strongly supported Tesla’s presence in China is an important reason, the better Tesla’s development, the better its supply chain system in China.

(Incomplete statistics on Model 3’s supply chain system, pictured from new materials online)

Car manufacturing is completely inseparable from suppliers, in a sense, suppliers really determine the competitiveness of automotive products (cost, quality), and Tesla’s suppliers fully domestic, will mean that more and more suppliers in the picture for Chinese companies, in addition to bringing huge economic benefits, but also to train a number of excellent suppliers, In order to achieve the goal of rapidly promoting the development of China’s overall new energy industry.

(Model 3 Chinese supplier, not exact statistics)

So combining these factors, Tesla’s choice of China and China to choose Tesla is a “one-shot” thing. Tesla can bring china’s ability to stimulate and promote industry growth, and provide huge economic benefits, while China can provide Tesla with “generous” resources and huge market potential.

Buy a car with a tip

Falling costs, subsidies and purchase-free policies have led to Aerlot’s “long-planned” price cuts, with prices of less than 300,000 so that many people watching can’t resist the temptation of a “down payment of 40,000, 5,000 a month.”

It’s worth noting, however, that while cutting costs is not harmful to Tesla, lower prices aren’t necessarily. A friend, who recently worked at Tesla Line, told me that with all the speculation about Tesla’s price cuts and further price cuts, several owners chose to withdraw their orders and decided to do “Wait a Party”.

He told me, “Before, Tesla’s owners were almost all driving away on the day of the lift, very refreshing and direct, and recently the owner of the car when he hesitated to buy a car, constantly checking the vehicle.” Not that users should not do this, because after all, spend hundreds of thousands to buy, pick up the car to ensure that everything they buy is intact is their right, just feel that the user base seems to have some changes. “

In fact, it’s no surprise that in the past, Tesla’s price, decided that the majority of people who buy Tesla think that people are paying for “technology” and “future”, dare to taste the people themselves do not care about these small details, even a high probability of more than one car in hand. At that time, Tesla’s market positioning, there are few competitors, so there is not much to compare. But now different, with the price reduction, its price range has entered the same as the traditional fuel car, domestic electric vehiclecompetition, at this time the consumer’s mentality will no longer be the same.

In the past, buyers were “buying a car and driving straight away”, but now many users are “buying to the tip” situation. A change in the user base will lead to a problem of over-interpreting “value for money”.

In fact, in consumer-grade products, there is a common situation, that is, the price is relatively “people-friendly” but very cheap things, often the user’s picky degree is very high, “This I want to have, that I also want to have, the price can not be expensive” is this part of the user often hold the psychology. As a result, if Tesla continues to cut prices, the original “small problems” will be rapidly magnified, such as some assembly process problems, inadequate localization applications and so on.

But that’s both a bad and a good thing for Tesla. The bad news is that as users rise dramatically, the “deified” part of the faith returns to reality, leading users to find Tesla as perfect as they think;

Overall, Tesla’s price cuts are good for users and a crucial way to pry the market out.

But another price cut in the short term should be unlikely, because even if Shanghai’s super factories reach peak capacity quickly, their products will be competitive enough and falling costs will not necessarily require lower prices as a value. Many people have been talking and worrying about whether Tesla will be cheaper, but they don’t see the impact of high profit margins when costs are lowered. In fact, increased profit margins mean that firms are flexible enough to respond to market changes and show enough potential to continue financing, and price cuts are only one way to boost their growth.

Tesla is likely to use the profits to reinvest, strengthen self-driving technology optimization and increase investment in future “robotaxi” sharing programs, and then Germany’s Superfactory 4, which is far more beneficial to the long-term long-term.

Conclusion

Tesla’s Shanghai super factory’s “Speed of God” actually reveals a signal that the new energy era is coming. Even fuel cars will last for decades, but whether you like them or not, this is the future of the future.

It’s not about environmental protection or not, it’s not about corner overtaking, it’s just about the nature of energy itself. Even if experts tell you that oil reserves don’t have to worry about it, shale oil is long enough, it can’t avoid a real problem: energy determines the world economy, the political landscape, and oil energy is a non-renewable energy source.

One of the big reasons Tesla has suffered “difficulties” in the U.S. is that it has touched the oil giants, which use 70 percent of its oil for automotive fuel. When Musk wanted to privatize, even Saudi Arabia had asked him to talk about “increasing investment in Tesla” to ensure that there was a back-up plan when the new energy era arrived.

So countries are rolling out a “total ban on the sale of fuel vehicles” plan. In the last month of 2019, China’s Ministry of Industry and Information Technology issued a draft for comments on the New Energy Vehicle Industry Development Plan (2021-2035). The plan mentions that China’s new energy vehicle sales will account for 25% of sales in 2025. This is rather radical and unrealistic in the face of a decline in new energy sales.

But a drop in new energy sales isn’t necessarily a bad thing for Tesla, because while overall sales growth is slowing, individual user purchases are actually rising if operating vehicles and public transport vehicles are left behind, which means users are starting to embrace new energy vehicles.

Looking back, what is the root cause of the failure of electric vehicles to be accepted by consumers?

There are no more than two issues, and these two issues are progressive. First, inconvenient, the current charging facilities infrastructure can not meet the electric vehicle “free travel” use of the scene, so as the most important reason for the purchase of cars “freedom to travel” no, greatly limit the number of potential users; The key factor in determining second-hand prices is how the market perceives electric cars, and if they are convenient enough and the user base is large enough, the residual value will no longer be a problem.

So in the end it’s really a problem – infrastructure, because only by solving the problem of the deployment of charging facilities can we really solve the problem. So when the problem of convenience is not solved, electric blowing can not avoid this reality, and once the problem is solved, there is no one concerned about “no engine, no soul” thing. But infrastructure has never been a problem for our country.