US technology company Tesla Motors is in discussions to build a factory in Shanghai, a move that could encourage its efforts as one of the most important markets, and promote China’s position as a builder of electric cars.
In a statement Thursday Tesla said it was necessary to create more foreign factories to be able to create cars depending on demand. Such a strategy is a must for China, which imposes strict tariffs and duties on imported cars.
“Tesla is working with the local government of Shanghai to explore the possibility of establishing a production facility in the region to serve the Chinese market,” said a company spokesman, quoted by the New York Times. “Tesla is deeply committed to the Chinese market and continue to we evaluate potential production sites around the world to serve local markets.”
“While we expect the majority of our production to remain in the United States need to create local factories to ensure accessibility to the markets we serve,” added the spokesman.
China generates about 15% of the revenues of Tesla last year, almost double the share, which contribute in 2015
Representatives of Shanghai have not responded to requests for comment. Bloomberg News reported earlier that Tesla and Shanghai have signed a preliminary agreement.
Negotiations company cannot guarantee the construction of the plant. According to Chinese law similar project would require Tesla to find a Chinese partner for the joint venture. While China is full of car brands Chevrolet, Ford and Volkswagen, most of them are produced in factories that jointly owned by a foreign automaker and a local company.
Shanghai city controlled SAIC Motor Corporation, one of the largest automobile manufacturers in China and a partner of General Motors and Volkswagen. It is unclear whether talks Tesla with local authorities will lead to negotiations with SAIC. Chinese automaker does not comment on the topic.
Tesla may circumvent the joint venture through the establishment of wholly owned factory in the area of foreign trade in China. But in this case would still have to pay 25% import duty on cars sold in China since the factory will be treated as being outside China for commercial purposes.
Among other complications is the fact that China recently announced that it will not issue more licenses for the production of cars, including electric cars. Tesla has no license, although it could form an alliance with a company that has one.
These are huge obstacles. But some analysts say the Chinese automotive industry, the economy of production in China – low cost supply chain, especially for electric vehicles, and the ability to circumvent import duties make the proposal attractive.
For China, a local factory, Tesla may represent a major symbolic victory. Driven by the continuous pollution and rising dependence on imported oil in the past few years, the country aims to be leader in the development of electric cars.
However, this raises concern in Western countries. In March, the Chamber of Commerce of the European Union in China complained that Chinese law requires manufacturers who intend to set up their shops in China to transfer important technology to their Chinese partners.
That complaint coincides with a wider debate on the plan of China, called “Made in China 2025”, which provides the country to become self-sufficient in some tech industries. This plan has raised concerns that China will nurture and subsidize domestic competitors and western companies.
However it is not clear what commitments can take on Tesla in China. Batteries are at the center of the technology for electric cars. The company has already invested huge amount of money in the factory for battery production in Nevada, called Gigafactory.
Tesla models are quite expensive in China. The price of the Model S ranges from 723,500 to 1,399,800 yuan, or about 104 000 to 203 000 dollars. The same model is sold for 70 000 to 140 000 US dollars before taxes.
