Tesla Given Green Light to Start Building Vehicles at its Shanghai Gigafactory
China is the world's biggest auto market and an important one for electric automaker Tesla. Over the past year, construction of Tesla's Shanghai factory has proceeded at a rapid pace and now the plant is almost ready to start building Tesla vehicles.
Reuters reports that Tesla was added to a government list of approved automotive manufacturers, China's industry ministry said on Thursday, as it granted the electric-vehicle maker a certificate to start production in the country.
The full list was published by the Ministry of Industry and Information Technology (MIIT).
This means "the green light is fully given to Tesla for production in China," said Yale Zhang to Reuters, head of the Shanghai-based consultancy Automotive Foresight. Tesla can start production any time, he added.
The $2 billion Shanghai factory is Tesla's first overseas factory and will help the automaker avoid steep import tariffs by building vehicles locally. The new factory will be equipped with production lines for both batteries and electric cars.
Reuters reported earlier this month that Tesla plans to start production at its China factory as early as this month, but it is not clear if that will happen yet. Tesla is still not sure if it will meet its production targets because of uncertainties around orders, labor and suppliers, according to Reuters.
Tesla CEO Elon Musk speaking at a groundbreaking ceremony for the Shanghai Gigafactory in Jan 2019. (Photo: Reuters)
Tesla intends to produce at least 1,000 Model 3s each week from the Shanghai factory by the end of this year, as it tries to boost sales in the world's biggest auto market. Tesla eventually aims to build 500,000 vehicles annually at the factory.
Tesla has a big advantage over its competitors, including BMW, Mercedes Benz and Ford by being able to produce vehicles in China and avoid import tariffs. Five of the top 10 vehicles sold from the U.S. to China last year were from BMW and Mercedes-Benz models.
In 2018, BMW exported over $8 billion worth of vehicles from its Spartanberg, South Carolina plant, with many of them shipped to customers in China. The vehicles are subjected to China's import tariffs levied against the U.S. since they are are built on U.S. soil.
Mercedes Benz imports the popular GLS and GLE SUVs from its plant in Tuscaloosa, Alabama. Together, Mercedes and BMW exports make up around 57% of all vehicles shipped to China with the most popular being the BMW X5.
Ford exports the luxury Lincoln MKC crossover and Ford Explorer SUV to China.
Tesla does not have any joint venture partner in China. In July 2018, Tesla raised prices of its cars in China by about 20% because of the added costs from the extra tariffs in retaliation of the U.S. tariffs on $200 billion in Chinese goods. The price increased put a big dent in Tesla's China sales.
The tariffs are the result of a tit-for-tat trade dispute between the Trump administration and Beijing that's been ongoing since 2018.
The Shanghai Gigafactory, which is the first fully foreign-owned auto plant in China, also reflects Beijing's broader shift to open up its car market to the rest of the world.
In April 2018, China announced it would relax rules requiring no more than a 50% ownership by a foreign company in any Chinese joint venture, paving the way for Tesla to build its factory.
Tesla's Shanghai factory will be run solely by Tesla, allowing the automaker to avoid the import tariffs levied on the U.S.-made version of the Model 3. Shanghai authorities have offered Tesla assistance to speed up construction, and China excluded Tesla models from a 10% car purchase tax on Aug. 30.
The tariffs are scheduled to increase by an additional 25% to 40% on Dec 15, unless some type of trade deal between the U.S. and China is worked out. This gives Tesla a big advantage over other U.S. automakers as it looks to break into the Chinese market.
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