Blog Musk Says China Factory Announcement Coming Soon

During Wednesday’s Q1 earnings call, Tesla CEO Elon musk dropped a few new details on the company’s factory plans.

After China recently said it will allow full foreign ownership of auto factories, Musk announced on the call that Tesla’s next Gigafactory will be built in China. In fact, Musk offered thanks to the Chinese government for lifting the restrictions. Previously, automakers needed to work through state-owned partners or pay a 25 percent import tax. This impacted the price Tesla could offer to Chinese customers.

Tesla currently currently builds cars in a former Toyota and General Motors joint facility in Fremont, Calif. The Gigafactory battery plant is located near Reno, Nev.

Musk said that going forward all new Gigafactories will also host vehicle manufacturing. Currently, battery, motor, power electronics and charger production are at Gigafactory, while vehicle assembly takes place in the company’s Fremont factory.

Musk has previously said that a Chinese factory would likely focus on Model 3 and Model Y production primarily for the local Chinese market.

The Model Y is expected to be built on the Model 3 platform to help remove complications in the manufacturing process and bring the vehicle to market faster.

Musk suggested on the call that the company would be making another factory announcement specific to Model Y production by the end of the year. He said it would be impossible to manufacture the vehicle in Fremont as the factory is “jammed to the gills.”

 

[Uncle Paul]

Only makes sense to manufacture your vehiles in/near the customers.

Political issues are much less, import duties make you more competitive and you may better understand your market.

Most new auto makers consider the cultural differences between different regions. US, Middle Eastern, Asian, developing countries etc, all benefit from making cars for their regional markets.

Tesla's plan of continous improvement will give them a leg up on their competition. OTA updates and two way communications with the end user gives them a treasure trove of continous feedback on how their vehicles are used, and what changes they may be able to make to gain additional customers.

Asia has much lower labor rates and overhead. Land is cheaper, environmental burdens less, and fewer governmental and labor regulations allow for a more effecient operation.

Tesla wants to thrive in a world wide economy.

 

[ricebucket]

When I mention IP, I don't just refer to patents, but things like construction process, etc. That's not necessarily in a patent, and is still why goods manufactured in the USA are usually much better. China wants to "partner" with our companies for that know how. I'm sure the manufacturing process for the batteries coming out of GF1 is very complicated. Hence why they want to see that in action.

What you're saying about quality is simply not true. You're at least a decade out of date in your perspective. In many sectors, China has the best manufacturing in the world today. For example, if you want to build a complicated piece of electronics like the iPhone, you go to China, period. No one in the US can make anywhere close to what the best Chinese ODMs can turn out. The factories and workforce and supply chain as a whole just doesn't exist elsewhere. It's not just about cost --- manufacturing in China has not been just about low labor costs for a long long time. (The manufacturing that *is* about cheap labor are no longer in China. Chinese wages are generally too high nowadays.) And it's even more lopsided if you account for the price --- even if these factories did exist in the US, you wouldn't get the same quality for the same price, because not all of the pieces are in place.

As for IP, there's probably greater risk for industrial espionage or theft in China than in the US. But the math is much more complicated than you suggest. For example:
- you're always at risk of IP theft, regardless of where you are. This is true even among the best of American companies (e.g. Waymo vs Uber, Microsoft vs Oracle). Staying in the US doesn't protect you from foreign theft either. Foreign companies can take still spy on you, and they can hire away your experienced employees.
- you hurt your foreign businesses by not locating overseas. There can be many reasons for this, but I don't want to digress. In the case of China and Tesla, you are at a disadvantage in the largest car market in the world. Larger than both US and Europe combined.
- hiding domestically may delay foreign competitors from catching up in the short term, but in the long term, this will cause you to lose competitiveness. "The Galapagos Effect." See Japanese cell phone makers for a recent example. You can't assume the rest of the world is static. The same argument applies to tariffs as well by the way.
Your xenophobia is clouding your judgment here. The companies that do work in China are not dumber than you. They're sophisticated multinationals with far better insights into their businesses than you can imagine. And they choose to be in China despite the reasons you mention, because it actually makes a lot of sense. Expanding overseas increases risk, but the rewards are also much greater. You can't have your cake and eat it too.

 

[windowtintpro]

Where the cars are sold doesn't matter, they would be handing over everything IP to the Chinese. They could simply take the factory
away and Tesla couldn't do a damn thing about it.

After that, Teslo cars would hit the streets.

Excellent news for Tesla that they are building their factory in China for the following reasons:
1. China is the largest Car market in the world & growing faster each year.
2. China charges about a 25% tariff / duty on any imported car.
3. China is the most important car market in the world.
4. Competition in EV market is fierce in China; they need to win there.
5. Plenty of Teslas have been bought in China, I'm sure they have taken them apart piece by piece.

 

[nagami]

nice article

 

[Brando]

Speaking of patents - only seem to help large corporations, limit competition and innovation, generally hurt our economy.
(it does help earnings of lawyers, no doubt)

Here is one very informative source - do your internet search and pick your topic/venue of interest and learn about patents.
American intellectual property lawyer, author

Stephan Kinsella

And for copyrights research
Lawrence Lessig

might check TED Talks for Lessig has a fine style of presentations - surprised more people don't copy.