A Chinese factory would give Tesla some cover in an extended US-China trade war. Tesla CEO Elon Musk, currently traveling in Asia, signed an agreement Tuesday with officials in Shanghai to build a factory with the capacity to produce up to 500,000 vehicles per year. Shanghai officials describe it as the largest foreign-funded manufacturing project in Shanghai history. The deal comes in the midst of an increasingly bitter trade war between the United States and China. A 25 percent Chinese tariff on US-made cars recently forced Tesla to raise the Chinese price of the Model S and Model X. Having a Chinese factory would help Tesla avoid these taxes, as it could manufacture cars in China and then sell the cars directly to Chinese consumers—or to customers in Asian countries with good trade relationships to China. Tesla's China project was first reported by Bloomberg. A Tesla spokesperson confirmed the news to Ars Technica. "Last year, we announced that we were working with the Shanghai Municipal Government to explore the possibility of establishing a factory in the region to serve the Chinese market," Tesla said in a press statement. " Today, we have signed a Cooperative Agreement for Tesla to start building Gigafactory 3, a new electric vehicle manufacturing facility in Shanghai." After obtaining the necessary permits, Tesla says, "it will take roughly two years until we start producing vehicles. " It will take another two to three years for the factory to ramp up to a full 500,000 vehicles per year. Of course, Tesla has a history of setting overly optimistic deadlines. At the end of June, Tesla finally reached a production rate of 5,000 vehicles per week in its Fremont factory, a milestone the company had previously aimed to reach at the end of 2017. Industry analyst and dogged Tesla critic Ed Niedermeyer tweeted that "two years from zero to production is bonkers," noting that car companies traditionally take longer than that to build and begin operating a new factory. So while Tesla may be aiming to start producing cars in China in 2020, we won't be surprised if the schedule slips by a year or two.
It's a way to sidestep the current trade war between the US and China. That didn't take long: Days after Tesla raised prices to offset import tariffs in China, the company has announced it has reached an agreement with the government in Shanghai to produce vehicles in the region. According to Bloomberg, it'll rival production of Tesla's sole factory in the US, with capacity to build 500,000 cars per year. It apparently won't be the only plant revealed in 2018, as the company teased that details for a European production facility would be discussed later this year. Over the weekend, Tesla raised prices on the Model S and Model X by over $20,000 (depending on configuration) as a result of the ongoing trade war between the US and China. While there previously was a 25 percent import tax, it didn't stop the region from buying Tesla's cars. Last year the automaker sold 14,779 vehicles in the country, and the country represented almost 20 percent of Tesla's revenue. Then China raised the import duties for American-made vehicles by an additional 15 percent as a response to President Trump's trade war. It isn't entirely clear what Tesla will build at the factory, but Musk has previously hinted that it'd likely be a site for Model 3 and Model Y (the company's crossover vehicle) production. Those cars still need batteries, though, and Tesla's lone battery factory is in Nevada. Musk has been talking about building a plant in China long before Trump added 25 percent import duties to over 1,300 Chinese products including steel, iron and touchscreens. The move will cut down on shipping fees, for starters, but it will also help Musk reach the production numbers and profitability he's been chasing for years. Harley Davidson recently did something similar. As a means of sidestepping the trade war Trump started with Europe by adding tariffs to imported aluminum and steel, the company announced that it'd shift production of motorcycles destined for European customers to the continent. Now to see how fast Tesla can build in China and if the factory will be up and running before this trade war ends. Update: A Tesla spokesperson reached out to offer the following statement: "Last year, we announced that we were working with the Shanghai Municipal Government to explore the possibility of establishing a factory in the region to serve the Chinese market. Today, we have signed a Cooperative Agreement for Tesla to start building Gigafactory 3, a new electric vehicle manufacturing facility in Shanghai. We expect construction to begin in the near future, after we get all the necessary approvals and permits. From there, it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers. Tesla is deeply committed to the Chinese market, and we look forward to building even more cars for our customers here. Today's announcement will not impact our U.S. manufacturing operations, which continue to grow."