Foreign Media: Tesla’s Shanghai Plant Goes Into Production, China Market Ushers in Real Competition

The launch of Tesla’s China plant marks an important step forward in Tesla CEO Elon Musk’s global goal of driving the dominance of electric vehicles and bodes well for real competition in China, the world’s largest electric car market.

Foreign Media: Tesla's Shanghai Plant Goes Into Production, China Market Ushers in Real Competition

Today, Musk hosted the first Chinese-made Model 3 delivered to Chinese consumers at a multibillion-dollar Shanghai plant. The Shanghai plant is Tesla’s first overseas plant outside the United States.

Local production will help Musk capitalise on Tesla’s recent momentum in China, the world’s largest traditional fuel car market. With not very high prices, Tesla is making a big push into the Chinese market. Tesla’s electric cars are no more expensive than similar products from local Chinese carmakers such as NIO and Xiaopeng, and far less than those of global car giants such as BMW and Daimler.

Today, Musk also introduced the Model Y crossover to the Chinese market, saying consumer demand for the car could exceed that of all other Tesla models combined. Musk also said he plans to build a design and engineering center in China so Tesla can eventually develop a brand new car in the country.

Analysts say the Chinese plant is the cornerstone of Musk’s plan to turn Tesla into a truly global automaker. The company also announced plans in November to build a new plant in Berlin, Germany, to meet Europe’s rapidly growing demand for electric cars.

It is reported that the German plant is mainly used in the production of Model 3 and Model Y. The plant will be Tesla’s second electric car plant overseas after the Shanghai plant.

For Tesla, what needs to be done now is to avoid repeating the mistakes of its California plant. There, Tesla experienced what Musk called a “production hell” for months as it ramped up production of the Model 3. After falling short of Musk’s ambitious targets, the electric car maker burned billions of dollars and ran out of money in a matter of weeks.

Tesla shares were up 1.7 percent at $459.25 in premarket trading today, a record high. Tesla’s shares rose 26 percent last year, slightly less than the 29 percent gain in the Standard and Poor’s 500-stock index.

Tesla’s shares have been rising since it reported surprise quarterly profits in late October. Now, Tesla’s situation has stabilized, having resolved some of the problems that limited the initial production of the Model 3 and has achieved good sales in the U.S. market.

Song Gangjie, head of manufacturing at Tesla’s China plant, said on December 30th that the plant was already assembling more than 1,000 vehicles a week, with the goal of doubling that pace by 2020. Tesla has said it plans to increase annual production of the Model 3 to 150,000 vehicles, or about 3,000 a week, when the plant is completed, and plans to increase production to 500,000 by the end of the next phase, though it is unclear when it will meet those goals.

Tesla’s Shanghai plant, about a 90-minute drive from downtown Shanghai, was originally a muddy patch of land. Chinese factories have been on the market in less than a year since ground breaking ground in early 2019.

In China, Tesla has also won a number of offers. Last month, model 3, made at the Shanghai plant, was added to a list of vehicles eligible to be exempt from the 10% purchase tax in China. It is also eligible for a government subsidy of Rmb24,750 per vehicle.

These subsidies helped Tesla reduce the price of the Model 3. Tesla announced last week that it would cut its Model 3 starting price by 9 per cent to Rmb323,800, and then to Rmb299,050. The price is likely to fall further in the future, as people familiar with the matter say Tesla is considering further lowering vehicle prices by using more local components and reducing costs.

Song Gang, the manufacturing director, said on December 30th that about 30 per cent of the components currently used at the Shanghai plant were sourced from China, and Tesla planned to raise that to 100 per cent by the end of 2020.

The discounted price brings the Model 3 closer to some of China’s domestic electric car makers, such as Xiaopeng’s latest P7 sedan, which starts at Rmb240,000. Before the subsidy, NIO’s SUV started at 358,000 yuan.

In addition, Audi, a unit of Volkswagen, plans to start selling nine new energy vehicles in China in the next two years, more than half of which are pure electric vehicles. The first electric car, the E-Tron, debuted in November and started at about Rmb693,000.

Daimler’s Mercedes-Benz launched EQC in October, starting at Rmb580,000. BMW plans to start making the iX3 crossover in China next year and is working with a Chinese partner to create an electric mini.