Tesla Aims to Make China the ‘World's Largest Vehicle Export Hub' with a Second Factory
Electric automaker Tesla Inc plans to build a second factory in China which would double its production capacity in the world's biggest auto market. Tesla's expansion plans were first reported by Reuters in February. Now those plans were reconfirmed in a letter sent to local officials this week which outlined how Tesla planned to further expand its plant in Shanghai.
A second factory in Shanghai will help Tesla to double its production capacity to meet growing demand for its electric vehicles cars in both China and export markets, two people familiar with the matter told Reuters.
The new plant will be located near Tesla's existing factory in Shanghai's Lingang, Pudong New Area.
Once the second facility is running at full capacity, Tesla will be able to produce up to 2 million cars per year in China, making it the automaker's main global export hub, according to people familiar with the plans. The people asked not to be identified discussing the still-private plans.
Tesla's expansion plans were revealed in recent communications in which the company thanked local officials in Shanghai's Lingang Special Area, where Tesla's factory is located, for their help in keeping the facility up and running while the country deals with additional lockdowns due to covid 19 cases.
According to Reuters, Shanghai authorities assisted Tesla in transporting over 6,000 workers, as well as carrying out necessary disinfection work to reopen the factory last month amid widespread lockdowns in China.
"They fought for three consecutive days, working round the clock and non-stop to guarantee our company's workers could return to the factory," Tesla said in the letter.
The letter also outlined how Tesla planned to further expand its plant in Shanghai, confirming the Reuters report in February.
Tesla plans to build a new plant on nearby land in the same area as its existing factory, which opened in 2019. The second factory will add an annual capacity of 450,000 cars, including Model 3s and Model Ys, becoming "the world's largest vehicle export hub", the letter said.
Tesla reopened its factory in Shanghai on April 19 after a 22-day shutdown due to covid restrictions.
An aerial view of Tesla's Shanghai Gigafactory under construction in 2019. (Source: AFP/Getty Images)
Tesla holds a big advantage in China over rival automakers, including BMW, Mercedes Benz and Ford Motor Co., as its wholly owns its factory. Tesla was the first foreign automaker to build its own factory in China after the country relaxed rules requiring that foreign automakers own no more than 50% of their joint venture partnerships with Chinese automakers. The factory also allows Tesla to avoid steep import tariffs.
Tesla delivered a total of 310,048 vehicles in Q1 2022. Roughly 90% of the vehicle deliveries were Model 3 and Model Ys with delivery totaling 295,324 vehicles. The remaining 14,724 were Model S and Model X SUVs. Tesla does not break up the sales of individual models, but the Model Y crossover remains a strong seller.
Tesla's Shanghai factory delivered 484,100 vehicles in 2021.
Tesla reported revenue of $18.8 billion in the first quarter ending March 31, versus estimates of $17.8 billion. The company's revenue jumped by up 81% compared to the same period last year, despite supply chain issues and an ongoing semiconductor shortage.
Despite the supply chain challenges for Tesla, the recent opening of its new factory in Germany and another scheduled to open soon in Austin, Texas will help the automaker significantly boost production. But China will remain an important market for Tesla to maintain its profitability, as it's the world's biggest auto market.
The expansion will also give Tesla the same production capacity as established automakers in China, including BYD, which is emerging as a competitor to Tesla in China with new fully-electric models on sale.
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