Why Elon Musk's New Shanghai Gigafactory Is Crucial for Tesla

Matthew DeBord  Business Insider

Matthew DeBord Business Insider

Chinese media reports said Musk would be in Shanghai to break ground on the plant, which Bloomberg News has reported could cost US$5 billion. Tesla fell behind on its lofty manufacturing and delivery promises for Model 3, causing volatile stock prices and even prompting Musk to sleep at the Tesla factory.

'Shanghai Giga will produce affordable versions of 3/Y for greater China.

Musk said the plant would have a capacity of 500,000 units annually when at full production and will produce the Model 3 and Model Y for sale in China.

Shares in Chinese suppliers to Tesla, including Tianjin Motor Dies Co Ltd and VT Industrial Technology Co Ltd, rallied on Monday after Musk's tweets.

Despite its relative affordability compared with other Tesla models, the price of a US-made Model 3 starts at about US$50,000, but Musk has said that he aims to get the price down to US$35,000.

A local plant will help Tesla lower prices in the market to compete with a new generation of local rivals including Nio Inc, Byton and XPeng Motors.

Tesla broke ground on Monday for its Shanghai Gigafactory where it plans to begin making its Model 3 electric vehicles (EV) by year-end, a first step in localizing production in the world's largest auto market.

A local Chinese plant could be crucial for Tesla, which is facing a drop in demand in the USA, its biggest market, after reductions in federal tax credits for electric vehicles.

China raised the import tariff on United States cars to 40% in July, then cut it to 15% from the start of this year as part of a trade war truce.

Pricier versions of the two cars will still be produced in the United States for global markets including China, he added. There are signs that the Chinese economy is slowing, and being in the country and keeping all of the profits generated by the facility will be critical to its long-term success.

The electric automaker purchased the site past year for roughly $140,000 and intends on building the 860,000-square-meter site far quicker than is typical of automotive factories, Forbes reports.

If all goes according to plan, construction will move at a rapid clip and production at the new factory will begin later this year.

The Shanghai government said in a statement its mayor Ying Yong urged the firm to "accelerate" work on the factory and said production would start to some degree in the second half of 2019 during a land visit in December previous year.

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