Tesla’s plans to begin manufacturing vehicles and products in China are coming along reportedly, with the electric vehicle pioneer now in talks with the municipal government of Shanghai to set up a manufacturing facility there. The company is reportedly expecting an agreement to be reached before the end of 2017.
As it stands, Tesla’s vehicles are subject to a 25% duty on sales when sold within the country (home to the largest auto market in the world) — a situation that you would think would change if Tesla was manufacturing within China, providing an incentive to be quick with in-country production, but it seems that Tesla may not get around that duty even if it builds a Chinese factory.
“Tesla is working with the Shanghai Municipal Government to explore the possibility of establishing a manufacturing facility in the region to serve the Chinese market. As we’ve said before, we expect to more clearly define our plans for production in China by the end of the year,” stated a Tesla spokesperson in an email to Reuters.
Reuters provides some context: “China’s government has considered allowing foreign automakers to set up wholly owned factories in free trade zones in part to encourage more production of electric and hybrid vehicles — which the government calls ‘new energy vehicles’ — to meet ambitious sales quotas. Tesla would still have to pay a 25% duty on cars built in a free trade zone, but it could lower its production costs.
“Tesla said in June it was beginning talks with Shanghai. The Wall Street Journal reported that Tesla and the Shanghai government have already reached a deal in that city’s free trade zone. Shanghai is China’s de facto automotive capital and a significant market for luxury vehicles of all kinds.”
It’s worth putting a reminder here that the China-based giant Tencent Holdings currently possesses a 5% stake in Tesla, and is likely involved in behind-the-scenes maneuvering relating to the establishment of production capacity there.
In addition to a new production facility in China, Tesla is also currently scouting locations in Europe.