Tesla makes good on delivery promises at China factory

Shanghai — Tesla kicked off production in China, marking a major step in CEO Elon Musk’s global push for electric-vehicle (EV) domination and heralding what could be the dawn of real competition in the world’s largest EV market.

Musk presided over a ceremony on Tuesday at a new multi-billion-dollar plant near Shanghai — its first outside the US — where the American company is handing over the first China-made Model 3 sedans to the public. Technically, deliveries began last week, but those were to employees.

Local production could help Musk build on recent momentum for the company in the country, which is also the world’s largest market for normal petrol guzzlers. Tesla is storming into China with prices that aren’t much higher than those local manufacturers such as NIO and Xpeng Motors, while undercutting global giants such as BMW and Daimler.

The Chinese plant, which was completed in record time as it sped through approvals and construction, represents a cornerstone of Musk’s plans to make Tesla a truly global carmaker. In November, the company announced plans to build a factory in the middle of Germany’s automotive heartland to cater to burgeoning European demand for EVs.

Musk’s flagship company, named after famed inventor Nikola Tesla who died 77 years ago today, will now need to avoid a repeat of the glitches it experienced in its original car factory in California, where the company went through months of what Musk called “production hell” as it ramped up Model 3 production. After consistently falling well short of the CEO’s ambitious targets, the EV maker burnt through billions of dollars and came within weeks of running out of money.

Lately, Tesla shares have been on a tear since the company reported a surprise quarterly profit in late October. The carmaker is on much steadier footing, having worked out the kinks that limited initial production of the Model 3 and managing to far outpace sales of many other carmakers’ EVs in the US

The China plant is already assembling more than 1,000 cars a week, and aims to double that rate over the next year, Song Gang, the manufacturing director at the facility, said on December 30. The company has said it plans to ramp up production to 150,000 Model 3 vehicles a year, of about 3,000 a week, when the first phase of the factory is completed; and the company plans to boost production capacity to 500,000 a year after the following phase, although it isn’t clear when exactly Tesla expects to achieve those goals.

Charm offensive and concessions

Musk’s charm offensive in China has appeared to pay off. Originally just a muddy plot about a 90-minute drive away from Shanghai’s city centre, the China plant has quickly come online since it broke ground at the start of 2019. It took twice as long for Tesla’s Gigafactory in Nevada to begin churning out batteries.

Back in China, Tesla has been winning various concessions from local authorities ranging from approvals to preferential loans — all the more notable given the trade war with the US. Additionally, last month, the locally built car was included on a list of vehicles qualifying for an exemption from a 10% purchase tax in China. It also qualified for a government subsidy of 24,750 yuan ($3,560) per vehicle.

The subsidies have helped Tesla cut prices, with the company announcing last week that it would reduce the starting price of the Model 3 by 9% to 323,800 yuan and down to 299,050 yuan after subsidies. Prices could go down further as people familiar with the matter have said Tesla is considering further lowering the price of the sedans by using more local components and reducing costs.

About 30% of the parts now used by the Shanghai facility are sourced locally, and the company plans to increase that to 100% by the end of 2020, said Song.

Those prices put Tesla closer to some models from domestic EV makers, such as Xpeng Motor’s latest P7 sedan, which starts at 240,000 yuan. NIO’s SUVs start from as high as 358,000 yuan.

Volkswagen’s Audi plans to start selling nine new-energy vehicle models in China during the next two years, with more than half being pure battery-electric. The first electric model, the E-Tron, debuted in November at a starting price of about 693,000 yuan. Daimler’s Mercedes-Benz made its EQC available in October starting at 580,000 yuan. BMW plans to start building the iX3 crossover in China next year and is working with a Chinese partner to electrify its Mini model.

To sum it all up, so far so good but it remains to be seen whether Musk capitalises on his winning streak to conquer the Chinese market.

Bloomberg