Due to the uncertainty caused by the US-China tensions, Tesla has halted plans to purchase land to expand its Shanghai plant and transform it into a global export hub, according to people familiar with the matter. Tesla now intends to limit the proportion of Chinese output in its global production, according to two of the four people. With 25% tariffs on imported Chinese electric vehicles imposed on top of existing levies imposed under former President Donald Trump still in place, Tesla now intends to limit the proportion of Chinese output in its global production.
According to sources, Tesla had proposed expanding exports of its China-made entry-level Model 3 to more markets, including the United States, a plan that had not been previously published. Tesla is currently shipping Model 3s manufactured in China to Europe, where it is constructing a factory in Germany. Model 3 and Model Y vehicles are currently produced at a rate of 450,000 units per year at Tesla’s Shanghai plant, which is planned to produce up to 500,000 cars per year.
Tesla did not bid on a plot of land across the road from the plant in March, because it no longer planned to significantly increase China production capacity, at least for the time being, according to three people who declined to be identified. Tesla’s Shanghai factory is “developing as expected,” according to a statement to Reuters.
A request for comment from the Shanghai city government, which was a key supporter of Tesla’s decision to build a wholly-owned factory in China – the first and only international passenger car plant in the country is not expected to form a joint venture – was not returned. According to two of the people, Tesla had never expressed an interest in buying the property, which is about half the size of the 200-acre (80-hectare) plot where the company’s current facility is located and would enable the company to increase capacity by 200,000 to 300,000 cars.
Despite mounting regulatory pressure in China as a result of customer complaints about product safety and criticism of the company’s data handling practises, Tesla’s sales in the country are surging. In the first three months of this year, it made $3 billion in revenue in China, more than tripling revenues from the same period last year and accounting for 30% of overall revenue.
Plans for the future
Tesla is known for changing gears on strategy, including in China, thanks to its mercurial CEO Elon Musk. Tesla is revamping its Shanghai plant to add space, according to construction documents posted on a government website in March. At Tesla’s Shanghai location, land that was once used for manufacturing is now used for parking. Tesla could increase its capacity beyond 500,000 on its current site, according to one of the sources. According to one source, Tesla may purchase additional land in the future to expand its car manufacturing lines.
Tesla is also constructing facilities in Shanghai to repair and replicate key components such as electric motors and battery cells, as well as instal electric vehicle chargers. According to a source with direct knowledge of the situation, the Shanghai government has been in talks with a number of companies about selling land for the construction of new-energy commercial vehicles. In China, Tesla is up against domestic competitors like Nio, which are considering producing mass consumer goods under a different brand name.
And before the trade war tariffs, the United States imported only a small number of Chinese-made automobiles. GM sells the Buick Envision, a Chinese-made SUV, in the United States, paying a 25% tariff despite the SUV’s low price.
