China is reportedly again considering to relax its protectionist law that forces foreign companies to create joint-ventures with domestic firms in order to manufacture in the country. Automakers would be exempted from the rule if they produce electric vehicles.
It’s not the first time that government officials have talked about making the change, but a quick look at electric vehicle sales in the market shows that it would make a big difference.
Currently, Tesla is the only foreign automaker in China with a significant share of the EV market.
Tesla China tripled its sales in 2016 to over $1 billion with over 11,000 deliveries and they continued their streak during the first quarter 2017 with a record quarter.
That’s despite the company not having access to all EV incentives in the country and its vehicles being subject to a 25% import duty.
It’s an impressive performance for Tesla, which sells more expensive vehicles in a market completely dominated by domestic automakers.
Bloomberg New Energy Finance revealed that the California-based automaker currently holds about 9% of the market with no other foreign brand coming close to them:
All foreign automakers are currently still required to take domestic partners to produce cars in the country, even if they are electric. Therefore, either they import them at high costs, like Tesla, or they produce them in the country with partners, or they don’t sell them at all.
The last one is not really an option anymore.
As we previously reported, foreign automakers have made several deals to produce EVs in China lately. VW, Daimler, Toyota, Ford, the Renault-Nissan alliance and more recently GM have all announced joint-ventures over the last year.
They are motivated by the country’s aggressive ZEV mandate. Automakers need zero-emission vehicles (ZEVs) to represent 8% of new car sales as soon as 2018 and quickly ramp up to 12% by 2020.
Tesla was supposed to make its own announcement about a Gigafactory in China over a year ago and while there have been several rumors of deals closing, the company still hasn’t made a commitment.
While it’s only speculation at this point, it could have something to do with the possibility to open the market to foreign automakers without having to partner with a local company.
Unlike other automakers who also sell gas-powered vehicles, Tesla has the luxury to wait since they don’t have the same problem with protecting their gas-powered car sales in China, which is now the biggest automotive market in the world.
The California-based automaker says that it is working with the Shanghai government to establish manufacturing capacity in the region.
It wouldn’t be surprising to see the deal finally go through if the government finally changes its protectionist rule, which is likely to accelerate investments from foreign automakers.