Luke Ottaway's picture

Tesla will manufacture in China, but not as soon as Musk claims

Any automaker that wishes to sell cars in China has great incentive to build those cars in China due to the 25% tax on imported vehicles. Tesla plans to build its own vehicles in China in the near future, but just how near is decidedly up in the air.

Tesla CEO Elon Musk is known for a lot of things, among them a propensity for grandiose plans that he is not afraid to share with the world. To his credit, he usually follows through on his promises. This week in Beijing he informed Bloomberg of his vision for Tesla’s place in the Chinese market.

“At some point in the next three or four years we’ll be establishing local manufacturing in China,” Musk said. “China is very important to the future of Tesla. We’re going to make a big investment in China in terms of charging infrastructure.”

To moderate the CEO’s enthusiasm, a Tesla spokesperson clarified to AutoblogGreen that the company does hope to manufacture locally in China but "we aren't likely to produce cars in China within the next three to four years, however, nor are we currently in any serious discussions to do so." Building its vehicles locally would necessitate a partnership with a Chinese company, and Tesla has yet to even begin discussions on the topic.

Though it is clear that Musk is eager to get started in China, the day the first Tesla vehicle rolls off a Chinese assembly line is not likely to be until at least 2019. We don’t doubt Musk’s ability to pull it off in a shorter time frame, but the company will have its plate full with the planned 2017 Gigafactory and corresponding launch of the mass-market Model E.

The main reason Tesla wants to build its cars in China is for the local tax incentives. The Chinese version of the 85-kWh Model S currently starts at $118,000 as a result of shipping costs and the 25% import duty. On top of that, domestically built electric vehicles are eligible for up to $10,000 in incentives and more in certain regions, and are exempt from the “license plate lottery.” Moving production to China would allow Tesla to effectively slash more than $30,000 from the Model S price tag, or just pocket the extra profits.

This has been a big week in China for the California automaker – in addition to Musk’s comments to Bloomberg, the company delivered the first of many Model S electric sedans to Chinese customers.

Tesla is also planning to deploy a Supercharger network in China, though it won’t be nationwide like the U.S. version. China’s population centers are far more urbanized than our own, so the greatest benefit will lie in strategically placing Supercharger stations throughout and to a lesser degree between major cities.

Charging infrastructure is a major barrier to EV adoption in China, where only a small portion of the population has access to a garage and potential residential charge port. Tesla hopes to alleviate the problem by allowing highrise-dwellers to charge up at the closest Supercharger station, though that particular solution isn’t as important for the demographic of buyers Model S will initially attract.

Musk says Tesla’s investment in China will be big, and we don’t doubt him. Though the country has struggled to encourage EV sales, it still represents the largest vehicle market in the world. The company has not been bashful about its hopes to sell 5,000 vehicles in the country this year and for China to account for half of international sales in 2015. We just aren’t convinced Tesla will be building its cars there as soon as Musk would like.

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Comments

Tesla's biggest hurdle may be convincing Panasonic to hand over all their intellectual property to a Chinese partner. If that can be overcome can you imagine the cost savings the needed giga factory in China will have compared to the one in the US? No pesky environmental issues to deal with, no OSHA, no unions, wages a small fraction of that a US based worker must earn (by law). Very interesting. Whoever the mandatory Chinese partner is will be psyched. My first guess as to Tesla's future partner would be Wanxiang, the owners of Fisker and A123. That might be weird for Tesla though. My second guess would be Anhui Jianghuai Automobile Co., Ltd (JAC). They have solid political connections in the US, make an EV now, and are partnering with a company in the US to make them here. Geely Holding Group based in Zhejiang would love to be the partner and they could co-market the Tesla with the Volvo EV's they make now. Now it gets fun.