The deal, as reported by the Wall Street Journal, is still being worked out. It could drastically cut production costs for Teslas sold in China – the world’s largest market for electric vehicles – and it is expected to exclude the kind of technology-sharing agreements that can deter innovative international companies from setting up plant there.
Last June, Tesla announced that it sold US$ 1 billion worth of cars in China in 2016, and that it had accepted a large investment from Chinese tech giant Tencent Holdings. However, Tesla’s progress in China faced a big hurdle, in part due to import duties : a Tesla sells currently for around 50% more in China than in the United States. A plant in Shanghai’s free-trade zone would reduce labor and transportation costs. Tesla CEO Elon Musk said in 2015 that a factory in the country could cut the price of vehicles sold in China by a third.
The Wall Street Journal writes, though, that cars produced under the new factory deal are still likely to be considered as imports and face a 25% duty. In the past, foreign carmakers have only been able to avoid that tariff by setting up joint ventures with local manufacturers, which often include technology-sharing provisions.
China is aggressively pursuing total electrification of its vehicle fleet, making it a vital market for Tesla.
To achieve global leadership in the electric car market that they missed in the conventional car market, China’s policy makers targeted electric cars for special support in the industrial plan “Made in China 2025”, which aims to foster upgraded, technologically advanced manufacturing. By 2020, Beijing expects its automakers to be able to churn out two million electric and hybrid vehicles annually – six times the number produced in 2015.
Last September, China’s vice minister of industry and information technology, Xin Guobin, said that the country is working on a timetable to end the production and sale of vehicles that run on fossil fuels, potentially dramatically reshaping the global automobile market in favor of electric vehicles.
Industries: Automotive and Road Transportation