2014 Tesla Model S in ChinaEnlarge Photo
Tesla has been hinting at a Chinese plant since 2014 and now it appears the company has finally received approval for one.
Citing people familiar with the matter, The Wall Street Journal on Sunday reported that Tesla has reached an agreement with officials in Shanghai to construct a plant in the city’s free-trade zone without partnering with a local automaker.
The move would make Tesla the first foreign automaker to manufacture cars in China without forming a joint venture with a local automaker. It means Tesla cars made in China would likely still face a 25 percent tariff normally placed on foreign-made cars, though the company would still benefit from lower costs made possible from improved logistics and access to the local supply chain.
Tesla has been reluctant to form a joint venture and avoid the 25 percent tariff because of the need to split profits and potentially share technology. But Tesla already has an ally in China. Chinese tech firm Tencent bought a 5 percent stake in Tesla in March.
A Tesla spokesman told The Wall Street Journal that the company would “clearly define” its Chinese production plans by the end of the year.
China has implemented an aggressive low-emission strategy to combat its air quality problems; the country aims to reach seven million electric car sales by 2025. For Tesla, it's a heck of an opportunity. Only about 15 percent of Tesla’s sales come from China, despite the car market there being the world’s biggest. Part of the reason is that Teslas on average cost around 50 percent more in China than they do in the United States, due mostly to the tariff. Reducing costs and in turn the sale price should help Tesla boost sales in China.