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Tesla Reportedly Agrees Terms for China-Based Factory, Won't be a Joint Venture

You don't need to be a financial or strategy guru to realize the Chinese car market is where any manufacturer that isn't already involved there should place its next investment.
Tesla Gigafactory near Reno, Nevada 1 photo
Photo: YouTube screenshot
Tesla made no exception and reports of talks with the local authorities have constantly made the news throughout this year, with the Shanghai name coming up most of the times. Even the company admitted it was in talks with its Municipal Government over the possibility of building a factory on Chinese ground.

As you may probably already know, the Asian country is very protective of its domestic market charging a 25 percent import tax for any vehicles built outside of its borders. Setting up a production plant in China isn't such a straightforward affair either as it requires forming a joint venture with a local company, further protecting the country's interests.

A lot of the U.S. and European carmakers have such deals in place (General Motors, Daimler, Volkswagen) allowing them to bypass the tax and sell their vehicles at more affordable prices. Tesla, however, does not. And while it hadn't been such a big deal until now with the Model S and X falling into the luxury segment and thus appealing to well-off buyers, the Model 3 would have a much harder time competing with the much more conveniently-priced local EVs.

If the report coming from Wall Street Journal (paywall) is correct, this agreement over the construction of a new factory will not solve the problem. That's because the plant would be built in Shanghai's free-trade zone and be fully-owned by Tesla, therefore not meeting the prerequisites for the tax exemption.

Even so, it would still boost the presence of the EV maker in the Asian area significantly, ensuring lower production costs and a much shorter supply chain. If correct, the report also shows that Tesla isn't keen on making any deals that would require splitting profits and, most importantly, technology with other companies, even if that meant skipping the 25 percent tax.

The Palo Alto manufacturer has not made any comment so far, reiterating it would make an official statement on the matter by the end of the year. One way or the other, Tesla is bound to make a move for the Chinese market, and even though it's not what everyone was expecting, this might be it.
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About the author: Vlad Mitrache
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"Boy meets car, boy loves car, boy gets journalism degree and starts job writing and editing at a car magazine" - 5/5. (Vlad Mitrache if he was a movie)
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