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Tesla signs deal for Shanghai factory that will pump out 500,000 cars a year

Image credit: reuters

Tesla has landed a deal with Chinese authorities to construct its first manufacturing plant outside the US which will see its production capacity doubled when in full operation.

The plant will be located in Shanghai and marks the first wholly foreign-owned carmaker in China to set up shop.

China has long pushed to capture more of the talent and capital invested by global automakers in advanced electric vehicle technology.

Tesla’s announcement comes amid mounting US-Chinese tension over technology and the ongoing trade war but also follows Beijing’s April promise to end restrictions that required foreign carmakers to work through local partners. 

Tesla is among the companies hit by additional 25 per cent import duties imposed by Beijing in retaliation for a tariff hike by US President Donald Trump in a dispute over technology policy.

The company said construction would begin in the near future, once official permits are obtained, and expects the first cars to roll off the production line in two to three years.

Tesla hopes that the factory will eventually produce 500,000 vehicles annually which would make it large compared to auto industry standards where most factories are tooled to build 200,000 to 300,000 vehicles.

The signing ceremony was attended by Tesla chairman Elon Musk, mayor Ying Yong and other Chinese officials, according to the city government.

China is the world’s biggest electric vehicle market but Tesla and other producers including GM and Nissan had been reluctant to transfer manufacturing to the country due to the requirement to share technology with Chinese partners that might become rivals.

Tesla began selling cars in China in 2014, shipping them from its California factory, which added a 15 per cent import duty to the price.

Despite that, China quickly became its number two market after the United States.

“Tesla is deeply committed to the Chinese market,” the company said in a statement.

Carmakers are pouring billions of dollars into developing electric car models for China.

GM, Ford, VW, Nissan and other competitors have announced ventures with local carmakers to develop models for China’s lower-income market.

Sales of pure-electric passenger vehicles in China rose 82 per cent last year to 468,000, according to the China Association of Automobile Manufacturers.

That was more than double the US level of just under 200,000.

Beijing is using access to its market as leverage to induce global carmakers to help Chinese brands develop battery and other technology.

The new factory will pile even more financial pressure on Tesla, which made a loss of $710m in the first quarter. 

Nevertheless the company has finally started hitting its production target of producing 5,000 cars a week after struggling with an overly complex production line that was hampered by excessive use of robots

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