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Tesla will open a manufacturing plant in China

14. November 2017

Tesla has struck a major deal with China. According to various reports, Tesla will soon begin construction of its first electric car plant in China.

The new manufacturing plant will be set up in Shanghai’s free-trade zone. This is highly significant, because it would allow Tesla to wholly own the factory rather than going into a joint partnership with a Chinese manufacturer, which is a standard condition outside the free-trade zone.

Since the factory is in the free-trade zone, the deal would also mean that Tesla would be exempt from the kind of technology sharing clauses that have typically deterred some other foreign investors.

However, whilst the free-trading zone would help in reducing Tesla’s production costs, Tesla would still be subject to a 25% import tariff. Though it would still likely boost Tesla’s sales in China, where Tesla was estimated to have sold $1 Billion worth of cars in China in 2016. One way Tesla could get around this tax is to offer up some kind of technology-sharing clause.

The deal, which Tesla has been actively pursuing for a while now, is thought to come into focus in June 2018 and even with a 25% tax Tesla would still be able to expand and increase its brand and global market share.


However, there does appear to be space for negotiation on this tax. In March, the European Union Chamber of Commerce lodged a complaint with regards to China’s joint-ownership policy, claiming it is far too insular. The fact that Tesla is unequivocally seen as the world’s most popular and innovative Electric car manufacturer could place political pressure on the Chinese government to alter its policies as a means of trying to truly realize its goals of becoming an electric-only vehicle manufacturer.

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MPR Author

About the author: Julian Busch is founder and managing director of MPR China Certification GmbH
Publisher: MPR China Certification GmbH

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