Earlier this year, Tesla CEO Elon Musk confirmed that the automaker plans on securing a location and a local partner for a manufacturing facility in China by the middle of the 2016. A foreign company needs a local partner in order to establish a manufacturing capacity in China.

Now we learn through a recent report from Chinese media that the California-based automaker is reportedly considering a factory location in Suzhou near Shanghai (see map above).

According to the report, the Suzhou government held a meeting on March 13 to discuss a project related to Tesla and executives from the company visited the region during the following week.

A Tesla China spokesman declined to comment to local media.

Tesla needs local manufacturing capacity in China in order to avoid high import duties and have access to more EV incentives, which are often limited to domestic cars. Tesla’s less expensive vehicle, the Model S 70, starts at 673,000 yuan ($103,709) versus $70,000 in the US.

Any manufacturing capacity in China would likely exist to satisfy local demand in Asia and not for European and/or American export. Tesla’s Fremont Factory has a total expected capacity of 500,000 vehicles per year and Tesla aims to only utilize about 20% of that capacity in 2016.

If Tesla can manufacture its vehicles in China, it should be able to compete more effectively with other vehicles in its segment and it will be particularly important when the automaker will introduce its first mass-market vehicle, the Model 3, which is a more price sensitive product than Tesla’s current offering.

A factory in China would be a significant addition to Tesla’s manufacturing capacity, which is currently mainly located in Fremont, California, but the automaker also operates a tool and die plant in Michigan and a final assembly factory in Tilburg, Netherlands. Tesla’s Gigafactory in Nevada is also producing battery packs for stationary energy storage and it is expected to start producing battery cells later this year.

 

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