Tesla Expands Presence in China with New Gigafactory

Tesla CEO, Elon Musk marked the expansion of Tesla’s presence in China by breaking ground for the company’s new Gigafactory dubbed “Gigafactory 3” in Shanghai on January 7. The Shanghai factory would be Tesla’s first such large-scale facility outside the United States. Musk said that he expected the new factory to start production of cars by the end of the year.

Tesla is setting up “Gigafactory 3” as it needs a local base for the manufacture of Model 3 cars for the Chinese market. Tesla had acquired the 860,000-square-meter site in 2018 for about USD 140 million. It is also planning production of a future Model Y crossover in China to avoid any financial impact from the recent tariff wars between China and the United States. Musk has tweeted that the first stage of construction of the plant would be completed by the second half of 2019 and hence construction is expected to proceed at a much faster pace than is typical for new auto-assembly plants.

Speaking at the function, Musk said that the plan is to finish the initial construction in the summer of 2019, to start Model 3 production by the end of the year and to reach high volume production by 2020. He said that the cars produced at the Shanghai plant will cater to the needs of the greater China region and they are being made in China to make them more affordable for end users.

Tesla had finalized an agreement with Shanghai government officials in July 2018 regarding its plans for a factory that will have the capacity to make up to 500,000 vehicles a year. It is estimated that it will cost at least USD 2 billion to build the plant. China is now the biggest market in the world for both conventional vehicles and EVs and this surge in demand has been fueled by government policies which aim to promote consumer purchases of less-polluting cars and trucks. If Tesla is able to sell its vehicles at affordable prices, Tesla’s production in China could potentially be as much as that at its US facility.

Generally, in the auto industry, it takes about two years for a plant to become fully operational after construction begins. Tesla said that it can expedite the construction of Gigafactory 3 from the learnings it acquired from ramping up Model 3 production in 2018. Musk’s initial plan to heavily automate the production of the car ran into numerous setbacks, and Tesla struggled throughout 2018 to consistently build about 5,000 units of the car on a weekly basis, before finally achieving this goal in the fourth quarter.

Tesla expects the first shipments of its Model 3s to arrive in China by March, and some orders that have been placed earlier might even be delivered in February. However, heavy import tariffs on goods from the United States mean that even the most basic Model 3 in China will have a retail price of USD 70,000, which is very steep when compared to its base price of USD 44,000 in the United States.

Initially, the factory in Shanghai is expected to make 3,000 Model 3s on a weekly basis, according to a statement that Tesla issued. Once the plant reaches its full capacity, it will have the capability to make 500,000 units on an annual basis, thus matching the production target of Tesla’s main plant in Fremont, California. Taken together, both the plants will give Tesla 1 million units of global output volume. Last year, Tesla had made a little less than 250,000 units in 2018. Tesla is still refining the operations at the Fremont factory and at its battery Gigafactory in Sparks, Nevada for optimal production.

Eminent dignitaries like Shanghai Mayor Ying Yong, Shanghai government officials, representatives from China’s National Development and Reform Commission and Ministry of Industry and Information Technology joined Elon Musk at the groundbreaking ceremony for the new plant.

Musk said in a statement that China is emerging as a global leader when it comes to the adoption of electric vehicles and will play a key role in Tesla’s drive to accelerate the world’s transition to sustainable energy.