Elon Musk breaks ground on Tesla’s Shanghai 'gigafactory'

Matthew DeBord  BIMe and a Tesla Model 3

Matthew DeBord BIMe and a Tesla Model 3

The factory, Tesla's first in China, marks a major bet by the EV maker as it looks to bolster its presence in the world's biggest auto market where it faces rising competition from a swathe of domestic rivals, while its earnings have been hit by increased tariffs on United States imports.

Analysts say production in China would allow Tesla to side-step such measures, which have already caused a spike in the price of the cars the company now imports to the Chinese market.

He also said plans for the factory include finishing "initial construction this summer", starting "Model 3 production end of year", and reaching "high volume production next year".

The factory, now just an expanse of muddy fields about two hours from Shanghai, will produce affordable versions of Tesla's Model 3 and Model Y for Greater China, he said during the visit, which took place on a cold, rainy day. "All Model S and Model X & higher cost versions of Model 3 and Model Y will still be built in U.S. for WW market, including China", he later added, referring to the worldwide market including China.

The China plant is the result of years of negotiations with local authorities, and marks somewhat of a personal triumph for Musk who faced a disastrous 2018. The new factory will help meet global targets on Tesla Model 3 production.

Musk had hinted recently at an upcoming Shanghai trip to break ground for the plant but Monday's event was not publicly announced until the Tesla CEO broke the news in a series of tweets earlier in the day. The company cut the price of all its models by $2,000 to partially offset the loss of the subsidy.

Until now, foreign automakers that wanted to manufacture in China were required to work through state-owned partners.

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The Shanghai venture comes as USA companies face pressure from President Donald Trump to keep manufacturing jobs at home, and as Beijing and Washington wage a trade spat that has seen both sides levy tariffs on hundreds of billions of dollars of products. China is the world's largest market for autos, and wants 7 million electric or hybrid cars sold a year by 2025, according to Bloomberg News.

Equity losses in China past year wiped out more than $2 trillion of wealth, denting consumer appetite for luxury goods. Apple triggered global equity losses last week when it said slackening Chinese demand spurred it to cut its revenue outlook for the first time in nearly two decades.

Passenger auto sales in the world's second-largest economy declined for six consecutive months through November, putting them on track for the annual decline.

But the pace of growth is expected to slow along with China's economy.

Shares in Chinese suppliers to Tesla, including Tianjin Motor Dies Co Ltd and VT Industrial Technology Co Ltd, rallied on Monday after Musk's tweets.

Wu Qing, a vice mayor of Shanghai, said the Tesla factory, the largest foreign direct investment project on record in Shanghai, was progressing on a rapid pace with the local government's support as Shanghai looked to enhance its manufacturing might. Tesla has said it plans to use mostly local debt to fund the factory.

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