State-Owned Shanghai Construction Group To Build Tesla's New China GigaFactory
Electric automaker Tesla is getting a helping hand from the Chinese government to build its new Gigafactory 3 in China. State-owned Shanghai Construction Group (SCG) will build the first phase of Tesla's assembly factory in Shanghai, Reuters reported on Thursday.
Xu Jiandong, a vice-president at SCG, was quoted by media outlet the Shanghai Observer saying that the company would fully cooperate with Tesla to achieve its objectives in building the plant.
Reuters reported back in December that several firms, including SCG, were taking part in the bidding.
SCG is one of the world's largest construction companies. Two of its most prominent construction projects include the Shanghai World Financial Center and the 128-story Shanghai Tower, one of the world's tallest and most recognizable buildings.
A Shanghai city government official said on Wednesday that they expect Tesla's vehicle assembly facility to be completed in May this year, which is a lofty goal since the site location was not officially announced until Oct 2018.
At the time, Tesla did not reveal the selling price for the land. However, Reuters reported that the Shanghai Bureau of Planning and Land Resources said a 213 acre plot of land in Shanghai's eastern Lingang district had been sold at auction at a price of 973 million yuan ($140.51 million).
"Securing this site in Shanghai, Tesla's first Gigafactory outside of the United States, is an important milestone for what will be our next advanced, sustainably developed manufacturing site," Robin Ren, Tesla's vice president of worldwide sales, said in a statement to Reuters in Oct 2018.
Tesla's Shanghai factory which would double the size of its global manufacturing and help lower the price tag of Tesla cars sold in China—the world's largest auto market and a important market for the electric automaker.
Tesla plans to build the mass-market Model 3 and upcoming Model Y crossover at the new Shanghai assembly plant. The plant is Tesla's first assembly factory located outside of the U.S.
Tesla CEO Elon Musk attends a groundbreaking ceremony for the Shanghai factory on Jan 7, 2019.
Currently Tesla builds all of its vehicles at its Fremont, California factory, a former General Motors plant. The plant operated as a joint venture between GM and Toyota before closing in 2010. Tesla purchased and took over the plant in Oct 2010. Tesla began delivering the first Model S cars built there in June 2012.
Tesla's China Factory Will Help Tesla Avoid Steep Import Tariffs
Tesla's China Gigafactory will help the automaker enter into China's rapidly growing market for so-called new-energy vehicles (NEVs), a category for fully-electric cars and plug-in electric hybrid (PHEV) vehicles. The Chinese government is aiming for NEVs to make up 20 percent of all vehicle sales by 2025, in an effort to curb pollution in the country.
More importantly, building its vehicle in China will help U.S.-based Tesla avoid steep import tariffs, so its vehicle can be sold for less and be more competitive.
In July 2018, China raised tariffs on U.S. autos another 25 percent, (from 15 percent to 40 percent) amid ongoing trade tensions in response to the Trump administration's tariffs on $200 billion worth of Chinese goods. This forced Tesla raise prices by around 20 percent in China for the Model S and Model X to remain profitable. The price increase caused sales of Tesla vehicles to plummet in China.
China agreed to roll back the tariffs to 15 percent last December after Chinese president Xi Jinping and Donald Trump met at the G20 summit in Argentina for trade negotiations.
Both sides agreed to a temporary 90-day truce, which began on Dec 1, 2018 while negotiations continue. Talks are still ongoing and the March 1 deadline to reach a deal has been extended by President Trump.
Even though Tesla's factory will help it avoid steep import tariffs and become more competitive in China, the U.S. automaker is facing increasing competition from a host of new Chinese EV startups planning to build more affordable electric vehicles. Among them are NIO, which trades its shares on the New York Stock Exchange, Byton and XPeng Motors.
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