Tesla Secures Land in China for Its First Factory Outside US

Electric car company Tesla yesterday signed an agreement to secure land in Shanghai’s Lingang area for its first factory outside the United States.

It has bid 973 million yuan (US$140.5 million) to use the land for 50 years, according to a posting on the Shanghai Land Market website.

The agreement with the city’s planning, land and resources administration will allow Tesla to accelerate its expansion plans in the world’s largest electric car market.

Securing the site is an important milestone for what will be the company’s “next advanced, sustainably developed manufacturing site,” said Robin Ren, Tesla’s vice president of worldwide sales.

“Tesla’s mission is to accelerate the world’s transition to sustainable energy not only through all-electric vehicles, but also scalable clean energy generation and storage products,” Ren said.

The US carmaker said it was accelerating the construction of Tesla’s Shanghai plant — Tesla Shanghai Gigafactory 3 — taking cues from the lessons learned in the US.

Tesla currently offers seven colors for its vehicles that include top variant Model S, mid level Model X and its most affordable sedan Model 3. The company plans to eliminate some color options to streamline production.

Lingang in the Pudong New Area has an industrial cluster of vehicles and auto parts. There are more than 20 carmakers and auto parts makers in the area which is actively promoting the development of new-energy vehicles and intelligent manufacturing.

Tesla signed an agreement with Shanghai Lingang Area Development Administration and Lingang Group in July to set up a wholly-owned factory in Shanghai, which would be the city’s largest foreign-invested manufacturing project.

The first batch of electric vehicles will roll off the production line in three years. The factory will initially have an annual capacity of around 250,000 vehicles and battery packs. That will eventually rise to 500,000 cars.

“The city government is pleased to have a strategic cooperation with Tesla. Shanghai welcomes Tesla to put its entire industry chain of research and development, manufacturing and sales of electric cars in the city,” Shanghai Mayor Ying Yong said in July. “The government will fully support the construction of Tesla’s factory, and create a better business environment and provide better services for all types of enterprises, including Tesla.”

As per the cooperation agreement signed in July, Tesla and Shanghai will focus on jointly promoting electric vehicle technology innovation and industry development. Tesla (Shanghai) Co and Tesla (Shanghai) Electric Vehicle Research and Development Innovation Center were both inaugurated in July.

The research and development center will mainly focus on innovation, research and development of electric cars and work to transform the technology and innovation into actual results.

Tesla currently imports all the cars it sells in China from the US. A factory in China will cut Tesla’s shipping and tariff costs while also meeting demand in the world’s largest auto market.

Earlier this month, Tesla said taking ocean transport costs and import tariffs into account, Tesla is now operating at a 55 percent to 60 percent cost disadvantage compared to the exact same car locally produced in China.

“This makes for a challenging competitive environment, given that China is by far the largest market for electric vehicles. To address this issue, we are accelerating construction of our Shanghai factory,” the company said in a statement.

The company faces competition from Chinese brands BYD Auto and BAIC Group that already sell hybrid and pure-electric sedans and SUVs annually.

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