Tesla to break ground on Shanghai plant as trade war lingers

8 January, 2019 12:00 AM printer

SHANGHAI: Tesla Inc will break ground on Monday for its Shanghai Gigafactory where it will begin making Model 3 electric vehicles (EV) by year-end, Chief Executive Elon Musk tweeted ahead of the formal start of construction of the firm's first Chinese plant.

The US$2 billion factory - long under discussion - marks a major bet by the US electric vehicle 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 and its sales have been hit by increased tariffs on US imports, report agencies.

"Looking forward to breaking ground on the @Tesla Shanghai Gigafactory today!" Musk wrote in a post on Twitter.

Musk has said previously he would attend the event in Shanghai. Tesla officials in China declined to comment.

The carmaker, which currently imports US-made vehicles to sell in China, is building the plant in an auto market that is set to contract this year for the first time in decades, though so-called new-energy vehicle (NEV) sales have been strong.

China raised the import tariff on US-made cars to 40 per cent in July, but cut it back to 15 per cent from the start of this year as part of a ceasefire in a trade war with the United States. The lower tariff will last until the end of March pending trade talks.

A local plant will help Tesla lower prices in the market to compete with a new generation of local rivals including Nio Inc, Byton and XPeng Motors.

"Shanghai Giga will produce affordable versions of 3/Y for greater China. All Model S/X & higher cost versions of Model 3/Y will still be built in US for WW market, incl China," he later added, referring to the worldwide market including China.

Alan Kang, Shanghai-based analyst for consultancy LMC Automotive, said: "Tesla's sales (in China) have dropped over the past few months because of high price caused by the tariffs. And the competition is getting more and more fierce."