If media reports are anything to go by, electric car maker Tesla has struck a deal with the Chinese government to establish a manufacturing facility in Shanghai.
The deal would allow the auto maker to build a wholly-owned factory in the city's free-trade zone enabling Tesla to cut down production costs, but it would still likely incur China's 25 per cent import tariff, The Wall Street Journal reported. Those are problems for Tesla, which wants to expand its presence in China’s growing electric vehicle market without compromising its independence or intellectual property.
The production options for manufacturers in China are limited by the government. One option is to set up a joint-venture, sharing much of their technology and profits with a Chinese partner while other is to manufacture in a free-trade zone in China, protecting their secrets but forking over steep tariffs.
Responding to the reports, Tesla Inc reaffirmed on Sunday it is talking with the Shanghai municipal government to set up a factory in the region and expects to agree on a plan by the end of the year, but declined to comment on a report that a deal has been reached. A Tesla spokesperson in the United States declined to comment further beyond referring to the June statement.
Shanghai is China’s de facto automotive capital and a significant market for luxury vehicles of all kinds.
Being inside a free trade zone means that unless Tesla can negotiate a special exemption, the cars could still be subject to China's steep tariffs—treated as though they were still being shipped from outside China even though they were being produced in the country, the New York Times said.
According to Fortune, Tesla has been pursuing a Chinese factory for years and the Shanghai deal started to come into focus in June.
Chinese internet company Tencent Holdings Ltd has a five percent stake in Tesla and is seen as a potential ally for Tesla’s efforts to enter the Chinese market.
It was unclear if the Chinese government will conclude a deal with Tesla to coincide with US President Donald Trump’s visit next month.
Tesla Chief Executive Elon Musk has said the company eventually will need vehicle and battery manufacturing centers in Europe and Asia.
Tesla is wrestling with production problems at its sole factory, in Fremont, California. It is trying to accelerate output of its new Model 3 sedan, but conceded earlier this month that production bottlenecks had held third-quarter production to just 260 vehicles, well short of the 1,500 previously planned.
