Tesla’s Shift to Shanghai Production Signals Rise of China’s Electric Car Sector
REUTERS/ Tesla MotorsAsia & Pacific06:20 26.10.2017(updated 03:57 26.10.2017) Get short URL
There has recently been renewed market speculation over Tesla’s effort to build cars in China, as the Wall Street Journal (WSJ) reported that the US premium electric-car maker has reached an agreement to set up a wholly owned manufacturing facility in Shanghai’s free trade zone
Although a Shanghai official in charge of new-energy vehicle projects was quoted as saying on Monday by Bloomberg that “there is no such agreement,” Tesla’s continuing interest in having its own China plant suggests that China will further open up its emerging market to global auto producers.
Since 1994, China has required foreign automakers to operate in joint ventures, in hopes its domestic companies could benefit from technology transfers through jointly operated factories. If the WSJ report is true, Tesla, hotly pursued by Chinese consumers, would be the first among foreign electric-car makers to build its own factory in China.
Tesla did not confirm the news but instead restated that it expected to more clearly define its plans for production in China by the end of the year. Although no further details were disclosed, the opening up of China’s electric vehicle market to foreign companies is an irreversible trend.
The move would drastically cut costs for foreign electric-car makers and improve their competitiveness in China’s fast-growing electric vehicle market. Tesla would not be the only beneficiary.
China remains the No.1 automotive market in the world and by far the world’s largest market for electric vehicles. Beijing’s efforts at gradually opening up access to foreign manufacturers would have far-reaching significance for the global electric-car market.
Tesla has long hoped to start local production in China. Reports said building a factory in the free trade zone would not mean Tesla could avoid the 25-percent tariff on vehicle imports, but that doesn’t seem to have affected the enthusiasm of Tesla to manufacture in China. Although minimum wages in China are rising, meaning higher labor costs for manufacturers, it seems that relocating its manufacturing operations to Shanghai will bring more benefits than costs for Tesla.
What’s interesting is that the news has come as US President Donald Trump tries to bring manufacturing jobs back to the US. Although his tax reform plans recently gained momentum, Tesla’s reported choice suggests that China is still an attractive investment destination for overseas manufacturers.
A complete industry chain built in China as well as technological progress in the electric vehicle sector are the basic pre-conditions for Tesla’s local production. China is building a manufacturing hub in the global electric-car market, a move that has been given fresh momentum by the production plan of Tesla, a brand that has built its reputation in China for design and quality.
Tesla’s efforts to start local production could be seen as a prelude to further opening-up of China’s auto and electric vehicle sector.
In a speech delivered at the opening session of the 19th National Congress of the Communist Party of China (CPC), General Secretary of the CPC Central Committee Xi Jinping made it clear that China will significantly ease market access and protect the legitimate rights and interests of foreign investors. China’s progress toward this goal will be definite and firm.