Elon Musk breaks ground on $5bn Tesla factory in Shanghai

Bloomberg

After four years of planning, Tesla Inc finally broke ground on its planned $5 billion factory in the world’s biggest auto market. But the timing couldn’t be more inauspicious.
Chief Executive Officer Elon Musk and some Shanghai officials, including Mayor Ying Yong, on Monday attended a function at a site near the city to kick off construction of what would be the electric-vehicle maker’s first car-manufacturing facility outside the US. The automaker aims to finish initial construction of the plant this summer and start Model 3 production by the end of the year, Musk tweeted.
The factory, now surrounded by muddy fields about two hours away from Shanghai, will produce affordable versions of Model 3 and Model Y for the Greater China region, Musk said. While the ground breaking marks a new journey for Tesla, it comes at a point where China’s economy is showing signs of strain amid the trade war with the US.
In China, the billionaire-entrepreneur faces a car market that probably shrank last year for the first time in at least two decades as uncertainties surrounding the trade fight between the world’s two biggest economies, signs of weakening domestic demand and a stock-market slump take their toll on consumers. The challenging environment also includes competition from several startups that all want to be like Tesla.
The China plant is the result of years of negotiations with local authorities, and marks somewhat of a personal triumph for Musk who faced a disastrous 2018. The US Securities and Exchange Commission moved to punish Tesla last year after his infamous “ funding secured” tweet, with fines and a settlement that required corporate governance reforms. It also comes on the back of Tesla’s ability to ramp up production of Model 3 sedans, marking the beginning of a turn in market sentiment.
A local Chinese plant may be crucial for Tesla, which is struggling to stave off a potential dip in demand in the US, its biggest market, after reductions in federal tax credits for EVs. The company cut the price of all its models by $2,000 to partially offset the loss of the subsidy.
A fully owned facility also would mean Tesla won’t need to share its profits and technology with Chinese partners, unlike other foreign carmakers who are required to form a domestic joint venture.
“Affordable cars must be made on same continent as customers,” Musk wrote in another Twitter post.
Domestic production would help shield Tesla against import duties as the US and China find ways to wriggle out of the tariff quandary. The two sides have called a truce in their trade fight and are engaged in talks to cool tensions, with China temporarily scrapping a retaliatory 25 percent tariff on US-made cars starting from January 1.
Tesla signed a preliminary agreement with the Shanghai government last year to build the 500,000-unit factory in the Chinese city.
In October, it said it paid about $140 million to secure more than 200 acres of land for the planned Gigafactory 3.