Tesla is looking into ways to make Model 3 more than 20% cheaper in China

Tesla is looking into ways to make its made-in-China Model 3 vehicles more than 20% less expensive in China, according to a new report.

As we reported yesterday, Tesla is now steadily producing and shipping made-in-China Model 3 vehicles out of Gigafactory 3 in Shanghai.

That’s an impressive feat less than a year after breaking ground at the location.

However, we still don’t know how much of the “made-in-China Model 3” is actually made in China.

When Tesla started taking pre-orders for the car, it said that the Model 3 Standard Range Plus with Autopilot starts at ¥355,800 (about $50,000).

It was only marginally cheaper based on the price structure of Model 3 vehicles imported in China from Tesla’s US factory.

Now a new report from Bloomberg states that Tesla is looking into ways to reduce costs by more than 20% through sourcing and making more components locally to avoid tariffs:

Tesla aims to bring down costs by using more local components, allowing it to import fewer parts and avoid tariffs, the people said, asking not to be identified as the matter isn’t public. Prices of the cars, which will be built in Tesla’s new Shanghai factory and start at 355,800 yuan ($50,800), will probably be lowered from the second half of 2020, they said.

It could make the starting price of the made-in-China Model 3 go below ¥300,000 (~$43,000 USD) and make it more competitive with electric vehicles from Chinese competitors like Nio and Xpeng.

Tesla declined to comment on the report.

Electrek’s Take

Obviously, no one expected that Tesla would build a whole factory from the ground up, along with an entirely new Chinese supply chain, and start producing full Model 3 vehicles out of Gigafactory 3 within a year.

But it would still be interesting to know in more detail what parts of the Model 3 Tesla is actually producing at the facility.

Based on Tesla’s own comments from October, they are doing at least “body, paint, and general assembly,” which is already a bid deal.

However, If Tesla sees the potential to reduce costs by more than 20% through local production and sourcing to avoid tariffs, it’s clear that there are many parts still being imported, the most important likely being the battery packs and cells.

We have heard reports about Tesla partnering with LG Chem and CATL to source battery cells locally for the made-in-China Model 3 and Model Y battery packs, but it sounds like that still might be in the future.

I don’t think we are going to see significantly cheaper Tesla vehicles made in China until those deals come to fruition.

I wouldn’t be surprised if the drivetrain is also being imported from Gigafactory 1.

Either way, it’s not taking away anything from what Tesla has done at Gigafactory 3. That’s still super impressive, but we definitely knew that there is room to improve on the made-in-China Model 3 prices.