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Tesla Opens Chinese Plant as Era of Real Competition Begins

Bloomberg News
Tesla Opens Chinese Plant as Era of Real Competition Begins

(Bloomberg) -- Elon Musk was apparently excited enough about Tesla Inc.’s prospects in China that he was moved to dance, sending the electric-car maker’s shares to new highs.

The chief executive officer awkwardly waltzed across a stage at Tesla’s new factory outside of Shanghai on Tuesday during an event to hand over the first Model 3 sedans to public buyers. Musk, 48, also elaborated on previously announced plans to produce the upcoming Model Y crossover at the plant.

“Ultimately, Model Y will have more demand than probably all of the other cars of Tesla combined,” Musk said, reiterating a prediction made during the company’s last earnings call. He said Tesla will reveal more in the future about advanced manufacturing technologies the company is applying to Model Y.

Tesla shares rose 3.9% to close at a record $469.06 on Tuesday. The stock has surged 84% since Oct. 23, when the company reported a surprise profit and said the Model Y will launch this summer, months ahead of schedule. Its market capitalization is approaching General Motors Co. and Ford Motor Co.’s combined.

The kickoff of Model 3 deliveries to local customers marks a major step in Musk’s global push for electric-vehicle domination and heralds what could be the dawn of real competition in the world’s largest EV market. Local production is allowing Tesla to drop prices of the car, narrowing the price premium relative to models from Chinese manufacturers NIO Inc. and Xpeng Motors, and undercutting global giants such as BMW AG and Daimler AG.

Musk also said Tesla plans to open a design-and-engineering center in China so that it can eventually develop a new car there.

The company named after famed inventor Nikola Tesla, who died 77 years ago today, will now need to avoid a repeat of the glitches it experienced in its original car factory in California. Tesla went through months of what Musk called “production hell” as it ramped up Model 3 production starting in 2017. After consistently falling well short of the CEO’s ambitious targets, the electric-car maker burned through billions of dollars and came within weeks of running out of money.

The China plant is already assembling 1,000 cars a week and aims to double that rate over the next year, Song Gang, the manufacturing director at the facility, said on Dec. 30. The company has said it plans to ramp up production to 150,000 Model 3 vehicles a year, or about 3,000 a week, when the first phase of the factory is completed.

Tesla plans to boost production capacity to 500,000 a year after the following phase, though it isn’t clear when exactly Tesla expects to achieve those goals.

Charm Offensive

Musk’s charm offensive in China has paid off. Originally just a muddy plot about a 90-minute drive away from Shanghai’s city center, the China plant has quickly come online since it broke ground at the start of 2019. It took twice as long for Tesla’s Gigafactory near Reno, Nevada, to begin churning out batteries.

Tesla has been winning various concessions from local authorities ranging from approvals to preferential loans — all the more notable given the trade war with the U.S.

Various government officials including Mayor Ying Yong and Zhu Zhisong, deputy secretary general of the Shanghai municipal government, were among the dignitaries attending Tuesday’s event. Vice Mayor Wu Qing said at the event that no foreign company has invested in a bigger manufacturing facility in the country.

The locally built Model 3 was included last month on a list of vehicles qualifying for an exemption from a 10% purchase tax in China. It also qualified for a government subsidy of 24,750 yuan ($3,560) per vehicle.

Price Cuts

The subsidies have helped Tesla cut prices, with the company announcing last week it would reduce the starting cost of the Model 3 by 9% to 323,800 yuan, or 299,050 yuan after incentives. Prices could go down further, as people familiar with the matter have said Tesla is considering further lowering the price of the sedans by using more local components and reduces costs.

About 30% of the parts now used at the Shanghai facility are sourced locally, and Song, the manufacturing director, said on Dec. 30 that the company plans to increase that to 100% by the end of the year.

Those prices put Tesla closer to some models from domestic EV makers, such as Xpeng Motor’s latest P7 sedan, which starts at 240,000 yuan. NIO’s SUVs start from 358,000 yuan, though that price doesn’t take into account subsidies.

Volkswagen AG’s Audi plans to start selling nine new-energy vehicles in China during the next two years, with more than half of them being pure battery-electric models. The first electric model, the e-tron, debuted in November at a starting price of about 693,000 yuan.

Daimler’s Mercedes-Benz made its EQC available in October starting at 580,000 yuan. BMW plans to start building the iX3 crossover in China next year and is working with a Chinese partner to electrify its Mini model.

--With assistance from Dana Hull.

To contact Bloomberg News staff for this story: Chunying Zhang in Shanghai at czhang714@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Craig Trudell, David Welch

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