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Tesla reportedly strikes deal with China to build ‘wholly-owned’ gigafactory in Shanghai

There have been several false alarms over the past few years about Tesla building a factory in China. Earlier this year, Tesla finally confirmed working with the Shanghai government to establish a manufacturing facility in the region and promised an announcement by the end of the year.

Now the Wall Street Journal reports that they have come to an agreement with the local authorities on a “wholly owned” factory in the region.

As previously reported, the biggest roadblock for foreign automakers to establish manufacturing capacity in China is that they have to create joint ventures with domestic companies and split their profits and technologies with them.

The government has been talking about potentially relaxing those laws especially for the production of electric vehicles, but the company apparently went another way instead.

According to the WSJ report, Tesla will establish the factory in Shanghai’s free-trade zone:

“The deal with Shanghai’s government will allow the Silicon Valley auto maker to build a wholly owned factory in the city’s free-trade zone, these people said. This arrangement, the first of its kind for a foreign auto maker, could enable Tesla to slash production costs, but it would still likely incur China’s 25% import tariff.”

Tesla didn’t comment on the report and reiterated that an official announcement should be coming later this year.

Electrek’s Take

China is already the biggest market for electric vehicles, or any vehicles for that matter, and Tesla profited from the demand by tripling its sales to over $1 billion in the country in 2016.

Tesla continues to have strong sales in the country this year, where it leads foreign electric car sales with no close second.

The company keeps growing in the market with Model S and Model X alone by expanding its presence with more stores, service centers, and Superchargers, but local manufacturing and Model 3 are expected to be needed to take the automaker to the next level in China.

Now the 25% import duty was seen as the biggest roadblock, which makes WSJ’s report especially interesting if true. Tesla would have preferred to retain 100% ownership over getting rid of the import tax.

I would take all this with a grain of salt until we have confirmation since as previously mentioned, several reports over the last year came out claiming that Tesla had a deal for a factory in China and it never came to fruition.

With this said, there’s no doubt the company is looking for several more locations to build Gigafactories to produce both batteries and electric vehicles.

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