Tesla breaks ground on Shanghai factory which will product Model 3 EVs for China

Tesla CEO Elon Musk has confirmed that the company’s first overseas factory in Shanghai will focus on producing Model 3 vehicles for the Chinese market only.

Musk is currently in China to break ground on the new factory today, which is being developed in partnership with the Shanghai government — an ally that is likely to be incredibly useful. The deal was announced by Tesla in July and it was followed quickly by the opening of Model 3 pre-orders for China-based customers in November.

Initial construction of the Shanghai factory is set to be completed by the summer, according to Musk, who said that he expects production to begin before the end of this year. The facility is aimed at churning out 500,000 EVs a year when it reaches full production, which should happen during next year, all being well.

Musk clarified on Twitter — his go-to for public announcements — that Tesla’s U.S. facilities will continue to manufacture vehicles for the U.S. and other markets.

Tesla isn’t the only one planting manufacturing roots down in the country. Byton, a U.S-China rival founded by former BMW and Infiniti executives, said this week it is on track to complete production of a plant in Nanjing by May. The outpost will have a capacity to produce 300,000 vehicles per year, the company said.

In June, Byton secured a $500 million Series B funding round from investors FAW Group, Tus-Holdings and CATL. The company has raised $850 million from investors in addition to loans and subsidies from China.

Despite optimism behind the Shanghai project, China has been the source of concerns for Tesla in recent times.

The country has reduced subsidies for green vehicles while its ongoing trade spat with the U.S. is raising concerns for U.S. businesses looking to reach consumers in the middle kingdom. Tesla’s share price dropped by nearly eight percent before the New Year after the company reduced the price of the Model 3 by seven percent in China. That followed reductions to the Model X and Model S in November, and it also coincided with Musk pledging to reimburse tax credits to U.S. customers who miss them because their pre-December order isn’t delivered before the end of the year.

Still, the Chinese market is the largest in the world for electric vehicles and hugely important for future growth.

The country is said to already account for 35 percent of global EV sales, according to Bloomberg intelligence, which reports that cumulative sales reach four million in August 2018. That’s just the start. Chinese city Shenzhen, known as the world’s mecca for hardware technology, has replaced all buses with electric versions and 99 percent of its taxis, and the government wants 20 percent of all car sales to be plug-in hybrids or battery-powered models by 2025 — that’s around seven million cars per day.