Tesla commits to 500,000-car factory in China as tarrifs kick in

A row of new Tesla Model 3 electric vehicles is seen at a parking lot in Richmond California

For Tesla especially, rapidly burning cash and struggling to turn a profit, China is key.

Electric vehicle producer Tesla will build its first factory outside the United States in Shanghai under an agreement signed Tuesday, becoming the first wholly foreign-owned automaker in China.

"According to the agreement, both parties will focus their cooperation on jointly promoting technology innovation and industry development, where the city of Shanghai will strongly support Tesla Shanghai", says a translated press release from the Shanghai Municipal People's Government provided to The Drive by Tesla. Local production would also allow Tesla to reach a wider audience of buyers in China and in the Asia-Pacific region, offering lower prices and tailoring the vehicles' offerings to the tastes of the local market. Bloomberg reported earlier that Musk, Tesla's chief executive officer, would be in the city for an event with the government on Tuesday. Tesla is now in "production hell" trying to build its affordable Model 3 sedan at its existing factory in Fremont, California, although the company recently hit its internal goal of producing 5,000 Model 3s in a week.

Tesla didn't respond to a request for comment on the price rises. From there, it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers.

Tesla shares rose 1.5 percent in US trading even as some analysts questioned where the money-losing company will get the capital required to build and staff such a large plant. Tesla ultimately hit its 5,000 Model 3 units/week goal, but that wasn't enough to completely assuage fears. China accounted for 17 per cent of Tesla's revenue for 2017, according a filing with USA regulators.

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Tesla is expected to soon make the announcement its next Gigafactory in Shanghai, China, after the Shanghai government announced that an initial agreement has been made.

Other automakers long ago capitulated to China's strict foreign ownership requirements for auto factories, requiring U.S. companies to establish 50:50 joint ventures with local firms to build cars in the world's largest auto market.

BMW exported about 81,000 cars from a plant in SC to China previous year, generating about $2.4 billion in sales.

The plan went ahead after Beijing said in April it would end limits on foreign ownership of electric vehicle producers this year. The company ships more than 15,000 cars a year to China.

Auto brands in China are required to make electric vehicles at least 10 percent of their sales starting next year or buy credits from competitors that exceed their quotas.

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