Recently, Tesla landed a deal with Chinese authorities to build a new auto plant in Shanghai virtually doubling its manufacturing capacity.
The massive factory is said to be planned to be large enough to produce as many as 500,000 vehicles a year after being open for two to three years at most. This would certainly make it an amazing and massive plant that’s much larger than most that we have in the US and anywhere else.
Investing in the Market
Why would Tesla want to put a new plant in China? The Chinese automotive market is the largest in the world with annual sales that are more than double what we see in the US. This means nearly 35 million models are sold each year currently, and with the move toward electric vehicles for the future, this is the right place for Tesla to build a center of operations. Not only will Tesla invest and build a new factory, but they intend to invest in the city and support much of the area.
The announcement of this new factory plan spurned the shares of Tesla to rise 1.5 percent even though some experts have already questioned where the company will find the capital required to build and staff this massive facility. Even though some experts are skeptical, Elon Musk, CEO of Tesla, has stated the company will be cash-flow positive this year. With several near projects on the board as the future of the company, Tesla will likely need to raise more capital in the near future to fund the building of a semi truck, a pickup truck, a compact SUV, and a new type of battery.
Tesla is Avoiding Tariffs and Building Local
Unfortunately, the relationship between the Chinese and US government has become tense in recent months because of an imposed tariff by the Chinese. This new tariff was a reactionary measure that resulted from threats to impose a tariff on goods coming from China to the US. In order to avoid this being imposed, companies will need to build models in the market where they will be sold in order to keep prices down and avoid the challenge of different currency shifts that are part of doing business around the world.
In addition to the goal of building a larger factory, doubling the production of the company, and avoiding the imposed tariffs, Tesla is entering the Chinese market where the goal is to move to 100 percent electric vehicles by 2030. Considering Tesla only builds electric vehicles, it seems to be the perfect place for such a company to have a base of operations. This new factory has already won the favor of the local Chinese government, making it easier for the company to create and build in the area with the support needed to be successful ina large market.
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