Tesla executives are linking the price drops in China throughout the year to supply optimization at Gigafactory Shanghai, which they say is now completed.

Now, they linked the price to material costs and say they could increase.

Tesla is completing its first full year of production at Gigafactory Shanghai, and it has been a successful one.

The automaker managed to ramp up production and lower cost.

Many analysts now believe that Tesla is achieving better gross margins with Model 3 vehicles built at Gigafactory Shanghai than at Fremont factory.

Despite the positive gross margin, Tesla managed to reduce the price of the Model 3 vehicles in China 5 times throughout 2020.

Tesla’s Vice President of China Tao Lin told China Business News (via Yicai) that Tesla managed to optimize the local sourcing of parts resulting in the price drop.

In the future, the executive says that price might increase as the current cost is mostly affected by the price of raw materials:

“Tesla’s goal of localization rate has been basically achieved, and it is unlikely that prices will continue to be reduced in the future. If the price of raw materials or parts rises in the future, Tesla’s electric vehicles are not without the possibility of price increases.”

Early on in the start of Model 3 production in China, Tesla said that the majority of the parts were still imported, but the automaker was working hard to source more locally in order to reduce costs.

China is an important market for Tesla and for electric vehicles, in general.

Earlier today, we reported on an analyst estimating that 40% of Tesla’s sales could come from China for the foreseeable future.

In the second half of 2020, Tesla started selling more than 10,000 vehicles in China per month.

This greatly increased the number of vehicles in its fleet, and now, the automaker is trying to make sure that it has the infrastructure in place to service them.

Xue Juncheng, director of service for Tesla Greater China, told China Business News:

“It is expected that the number of service centers in China will be increased to 90 by the end of this year, and the goal is to double the number of service centers next year on the basis of this year.”

Tesla is also heavily investing in growing its Supercharger network in China.

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