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Musk Says Chinese Factory In Tesla's Long-Term Plans

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2013 Tesla Model S

2013 Tesla Model S

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If you're an automaker selling cars in China, doing so from outside the country is made much more difficult due to high import tariffs imposed at the border. But do so from within--as Tesla Motors is considering with its Model S electric sedan--and you skip those tariffs, allowing customers to buy your cars for a similar price they might anywhere else in the world. So while a Tesla Model S with an 85 kWh battery pack will cost around $121,000 when it goes on sale in China soon, Tesla Motors [NSDQ:TSLA] could feasibly sell it for the $80,000 or so should it decide to set up production within the country's borders.

"Long-term there’s no question we’ll have a factory in China," CEO Elon Musk told Bloomberg. Eliminating those import tariffs is the biggest argument Tesla has for expanding production outside the U.S., although there's also the likely chance that China will become the biggest market for Tesla as it has for many other brands recently. The Fremont facility would remain, of course, but production in China would shave thousands off the cost of selling the Model S there--not least from shipping costs. In a post on Tesla's official blog, the company broke down the cost of selling a Model S in China--it costs $3,600 in shipping alone, $19,000 in customs duties and taxes, and a sales tax or "Value Added Tax" (VAT) of $17,700.

Despite all these additions, $121,000 is something of a bargain for the Model S in China. Musk believes competitors make use of China's lofty import taxes to throw several thousand extra onto the price of their cars--maximizing profits, but ripping off customers in the process. In some cases it's enough to double the price of vehicles, compared to similar models in the U.S.

"I don’t think ripping off customers is a good long-term strategy," he said. Given the price of the Model S in China, Musk believes the market could become Tesla's biggest, and some analysts think the low pricing will attract premium customers to try the car, particularly those based in cities.

It'll even have the right name says Reuters, with Tesla winning its long-running naming battle in the country. Disputes over the trademarked Tesla name meant the company had resigned itself to the name "Te-su-le" for Chinese sales, but Tesla has now won its battle in the courts--and finally gets to use the phonetically correct "Te-si-la".


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