Blog Report: Tesla’s Plan for a Chinese Factory in Trouble

Tesla said last year that it was working with Shanghai’s government on a plan to build a factory in China, however a Bloomberg report says the deal may be in jeopardy.

Bloomberg cites people with direct knowledge of the situation saying the two sides disagree on the factory’s ownership structure. China’s central government says the plant must be a joint venture with local partners, while Tesla wants to own the factory completely, according to the report.

China is a massive opportunity for Tesla, as sales of battery-powered, plug-in hybrid and fuel-cell automobiles are expected to surpass 1 million this year, according to the China Association of Automobile Manufacturers. The Chinese government’s target is 7 million vehicles a year by 2025.

The planned facility in Shanghai is expected to produce Model Y crossover SUV and the Model 3 sedan.

Chief Executive Elon Musk said on the company’s Q3 2017 earnings call that Tesla could start producing cars in China within three years with an output of “at least a couple hundred thousand vehicles per year, maybe more.”

The Wall Street Journal reported in November that Tesla and the Shanghai municipal government reached an agreement for the new factory that would allow Tesla to build cars in the country without needing to partner with a local manufacturer. Tesla’s cars are currently subject to a 25% import tariff in China, which pushes the price out of reach for many Chinese consumers. For instance, a Tesla Model X made in the U.S. and shipped to China costs about 835,000 yuan ($132,000).

 

[Tam]

...Chinese playbook...

It's true that many foreigners have failed in Chinese-Foreigner business model but still many other foreigners work with it fine including many non-Chinese car companies, and especially Apple with products are made in China.

 

[RDoc]

That article is from Feb 2018

It came on a slow boat from.... um

 

[sandpiper]

It's true that many foreigners have failed in Chinese-Foreigner business model but still many other foreigners work with it fine including many non-Chinese car companies, and especially Apple with products are made in China.

There's a basic asymmetry in the way that China expects to work with foreign firms... requiring a local partner. This isn't required anywhere in the west, and it basically guarantees wholesale IP theft. Obviously that's why Tesla won't accept it.

That local partner rule was fine while China was a developing country - where it needed a bit of a leg-up to catch up with the rest of the world. China has caught up in a lot of key areas and should no longer be given special treatment. Nobody will blame them for wanting to keep it. But nobody should blame the west for expecting a level playing field now.

Apple's relationship with China pre-date China's entry into the leading technology countries. I'm sure Apple is being very very careful in how it furthers those relationships in China, and I expect to see Apple diversifying their sourcing strategy in the future.

 

[sandpiper]

I don’t think you realize just how much popularity that Tesla has in China and Taiwan.....the Chinese are super high-end luxury consumers and they indulge in their Louis Vuitton, Mercedes Benz, Maserati .... and Tesla has a reputation for being such.

.... He even mentions his awe with the speed at which the Gigafactory is being built, and this underscores just how different the environment is in China; highly skilled labor workforce with a much better work ethic and lenient corporate labor laws.

... If anything, the main Chinese competitor (NIO) probably already have what they want, which is Tesla’s Autopilot software (thanks to Tesla’s unsecure IT MDM policy that allowed a former employee to copy sensitive files to his iCloud Drive)

You said a lot here that I agree with. Tesla is well positioned to perform extremely well in the Chinese market. I've been there a lot and seen their rather crazy devotion to status and "luxury" brands.

All of that is quite unrelated to the IP theft issue. There is a tremendous amount of IP in the Tesla drivetrain... the motors, cooling systems, battery architecture, and a raft of other things that are central to the performance of the vehicles. And they are complex enough that simply copying won't suffice. You need somebody on the ground floor of the design/manufacturing process to feed you more detailed information, as to why things are done in certain ways.

Tesla, quite rightly, is very concerned about losing all of that IP to local "partners".

 

[Hkbruin]

You said a lot here that I agree with. Tesla is well positioned to perform extremely well in the Chinese market. I've been there a lot and seen their rather crazy devotion to status and "luxury" brands.

All of that is quite unrelated to the IP theft issue. There is a tremendous amount of IP in the Tesla drivetrain... the motors, cooling systems, battery architecture, and a raft of other things that are central to the performance of the vehicles. And they are complex enough that simply copying won't suffice. You need somebody on the ground floor of the design/manufacturing process to feed you more detailed information, as to why things are done in certain ways.

Tesla, quite rightly, is very concerned about losing all of that IP to local "partners".

I had an epiphany - if they could pull another play out of their “China Playbook” and do what they did with the iPhone LCD grey market... I wouldn’t mind them flooding EBay with replacement bumpers, glass roofs and door panels!