Technology



January 8, 2019,   3:33 PM

Elon Musk Accelerates Tesla's China Strategy With Shanghai Gigafactory Groundbreaking

Alan Ohnsman

FULL BIO

tesla gigfactory

Fast on the heels of Tesla's plan to start delivering Model 3 electric cars to customers in China, CEO Elon Musk traveled to Shanghai to break ground for the company's first large-scale plant outside the U.S., which he says could be building cars by year-end.

Work on "Gigafactory 3," being built on an 860,000-square-meter site Tesla acquired last year for about $140 million, gets under way as the Palo Alto, California-based company needs a local production base for the Model 3 and a future Model Y crossover to avoid China's steep tariffs on imported vehicles. Construction is set to move much faster than is typical for new auto-assembly plants, with Musk tweeting that the first stage of construction should be done in the second half of 2019.

"Aiming to finish initial construction this summer, start Model 3 production end of year & reach high volume production next year," the billionaire entrepreneur said. "Shanghai Giga production of Model 3/Y will serve greater China region ... not North America. Affordable cars must be made on same continent as customers."

Tesla reached an agreement with Shanghai government officials in July 2018 on plans for a factory capable of producing up to 500,000 vehicles a year and estimated to cost at least $2 billion to build. Spurred by government policies aimed at accelerating consumer purchases of less-polluting cars and trucks, China has become the world's biggest market for both conventional autos and EVs, and Tesla's production there could eventually rival its U.S. volume if the company can sell its products at more affordable prices.

Tesla shares rose 5.4% in Nasdaq trading Monday, gaining $17.27 to close at $334.96.

In the auto industry it typically takes about two years from the start of construction until assembly operations begin. Tesla said it can speed up construction of Gigafactory 3 because of what it learned from ramping up Model 3 production last year. Musk's initial plan to heavily automate production of the car ran into numerous setbacks, and Tesla struggled throughout 2018 to consistently build about 5,000 units of the car per week, a level it essentially reached only in the fourth quarter.

Tesla said last week that initial shipments of Model 3s should arrive in China by March, with some early orders possibly getting to the country next month. Initially, however, import fees mean the cheapest version of the Model 3 for China is priced from about $70,000, compared with a U.S. base price of $44,000 for the car. Musk has long promised a $35,000 Model 3 for the U.S., but it remains unclear when Tesla will be able to sell the car at that price.

The initial production goal for the Shanghai plant is 3,000 Model 3s per week, Tesla said in a statement. When the Chinese facility is complete, its capacity of 500,000 units a year, matching the target volume for Tesla's main plant in Fremont, California, potentially gives Tesla 1 million units of global output volume. The company produced just under 250,000 units in 2018 and is still working to streamline operations at Fremont and at its battery Gigafactory in Sparks, Nevada.

Musk was joined at the ceremony by Shanghai Mayor Ying Yong and Shanghai government officials, as well as representatives from China's National Development and Reform Commission and Ministry of Industry and Information Technology.

“China is becoming the global leader in electric vehicle adoption, and it is a market that is critical to Tesla’s mission to accelerate the world’s transition to sustainable energy,” said Musk in a statement.



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