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).

 

[renim]

my guess,

Tesla has the right to manufacture on Chinese soil (at a Special Economic Zone) but due to not having a 50% local automotive partner, those cars will still be treated as full imports as far as imports tariffs, and ZEV credits are concerned.

so Shanghai government can facilitate a Tesla factory
but Beijing government manages import tariffs and ZEV credits.

 

[bobowah]

my guess,

Tesla has the right to manufacture on Chinese soil (at a Special Economic Zone) but due to not having a 50% local automotive partner, those cars will still be treated as full imports as far as imports tariffs, and ZEV credits are concerned.

so Shanghai government can facilitate a Tesla factory
but Beijing government manages import tariffs and ZEV credits.

Shanghai area requires you to partner with a local Chinese company whom will steal your IP.

@tesla as a suggestion look at that Kunshan area Suzhou Province next to Shanghai if there is still real estate available to build there. City and County officials are more open to 100% ownership... And several of your US owned suppliers with China operations are there already.

 

[Ulmo]

Shanghai area requires you to partner with a local Chinese company whom will steal your IP.

Exactly, which we've learned China will use to subvert US interests every time, in this case, the goals and successes of Tesla and everyone involved with it.

@tesla as a suggestion look at that Kunshan area Suzhou Province next to Shanghai if there is still real estate available to build there. City and County officials are more open to 100% ownership... And several of your US owned suppliers with China operations are there already.

That certainly sounds better, but I wonder if China is the best target for EV profitting if they already have competent manufacturers of their own for their own people. Perhaps getting some of their money is a good idea if the downsides are little.

 

[Mo City]

Shanghai area requires you to partner with a local Chinese company whom will steal your IP.

This is why I've never felt good about Tesla having a gigafactory in China. I understand the natural fit and the huge profit potential. This would take Tesla to another level.

But IP concerns should stop this from happening. No matter what is negotiated and put in writing, the intellectual theft from Tesla will be vast.

 

[Sean Wagner]

I remember a German wrote how his company sold a cement factory [if I recall correctly] to China. After a while, they started to wonder why no orders for spare parts were coming in - turned out the entire factory was being copied and sold all over the country.

 

[Rob R]

I thought Tesla makes it's IP open source anyway, so the usual concerns would not really apply here?

 

[ChicagolandMX]

There is a licensing agreement to use the IP.

 

[ggr]

I thought Tesla makes it's IP open source anyway, so the usual concerns would not really apply here?

Their patents are open, but there is still a lot of trade secrecy. Like some of their production line processes, what machinery they are using, who supplies stuff, all sorts of things. They still don't allow photography when you do a factory tour, for these kinds of reasons.

 

[thecloud]

There are two different ways to read that headline. In one reading, the factory doesn't yet exist and Tesla's plan is in trouble; in the other, it already exists but Tesla has a plan to get it out of trouble.

English: much tricks, such subtle.

 

[drinkerofkoolaid]

My view based on observations I’ve made about Tesla in China. Tesla already works with some Chinese suppliers and employs a good number of people directly and indirectly in numerous Chinese cities. It’s very possible Chongqing or Tianjin might be the cities Tesla is eyeing for environmentally friendly factories. These “special regions” not currently fully occupied, that have many advantages to Shanghai, including sections intended for specialized foreign investment that as I understand it, are sometimes exempt from the requirement to have a 50:50 partnership.

This doesn’t mean Tesla isn’t also planning production in Shanghai! There are certain towns/“special cities” that are being developed into Hubs for clean energy production and Green cities.

As a reminder:
Tesla in contact with Shanghai to build plant: MOC - Xinhua | English.news.cn

 

[Tobyw]

The cat is out of the bag for China, as long as the CCP is in charge, China is history for companies with IP to shield. China already has ten electric car companies, they just want Elon’s battery and mfg tech. IMHO.

There may soon be a revolution there too! Hong Kong is resisting China’s treaty-breaking interference, an uprising in HK could inform mainland Chinese and spread revolution. It is now or never! China will soon have monitoring that will tell what you are thinking.

 

[Tobyw]

There are two different ways to read that headline. In one reading, the factory doesn't yet exist and Tesla's plan is in trouble; in the other, it already exists but Tesla has a plan to get it out of trouble.

English: much tricks, such subtle.

The cloud seems much more than water vapor!

 

[Tobyw]

My view based on observations I’ve made about Tesla in China. Tesla already works with some Chinese suppliers and employs a good number of people directly and indirectly in numerous Chinese cities. It’s very possible Chongqing or Tianjin might be the cities Tesla is eyeing for environmentally friendly factories. These “special regions” not currently fully occupied, that have many advantages to Shanghai, including sections intended for specialized foreign investment that as I understand it, are sometimes exempt from the requirement to have a 50:50 partnership.

This doesn’t mean Tesla isn’t also planning production in Shanghai! There are certain towns/“special cities” that are being developed into Hubs for clean energy production and Green cities.

As a reminder:
Tesla in contact with Shanghai to build plant: MOC - Xinhua | English.news.cn

Cities are not germane, the CCP is all except for the Chinese people.

 

[Tobyw]

Build a plant in UK if they do a sufficient BREXIT. Elon can build the batteries in NV and ship them if desired, they are compact and should cost much less than a car to ship. Norway is a big buyer of Teslas. Brazil is another possibility if the new conservative Bolsonaro government does well.

 

[Uncle Paul]

Looks like next Giga Factory will be in Germany.

Elon wants a Giga Factory on every Continent.

 

[Tam]

...they just want Elon’s battery and mfg tech...

If Tesla is worried about that it would have not made "Tesla computer brain" from China.

 

[sandpiper]

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...
[WPURI="https://teslamotorsclub.com/blog/2018/02/15/report-teslas-plan-for-a-chinese-factory-in-trouble/"]READ FULL ARTICLE[/WPURI]

And who didn't see this coming with the current US/China frictions? Tesla has just become a pawn in the trade war. They Chinese party , who has been pulling the strings, let Tesla get into this mess deep enough that they will struggle in extracting themselves, and now they're squeezing. I'm sure that this has been the Chinese playbook all along. it's also why the Chinese government bent over backward to get the factory up as quickly as possible. They needed to get Tesla into play quickly enough for it to matter in trade negotiations.

If Tesla agrees to local shared ownership, they might as well save themselves the stress just hand over the full set of designs and software to the Chinese auto industry.

 

[30seconds]

That article is from Feb 2018

 

[Hkbruin]

And who didn't see this coming with the current US/China frictions? Tesla has just become a pawn in the trade war. They Chinese party , who has been pulling the strings, let Tesla get into this mess deep enough that they will struggle in extracting themselves, and now they're squeezing. I'm sure that this has been the Chinese playbook all along. it's also why the Chinese government bent over backward to get the factory up as quickly as possible. They needed to get Tesla into play quickly enough for it to matter in trade negotiations.

If Tesla agrees to local shared ownership, they might as well save themselves the stress just hand over the full set of designs and software to the Chinese auto industry.

I don’t think you realize just how much popularity that Tesla has in China and Taiwan. China has the infrastructure but Taiwan doesn’t and is faced with import tariffs and other challenges, but the few people I spoke to in Taipei during my recent holiday indicates that if an expanded infrastructure is there, they’d jump on it in a heartbeat.

You know how we’ve recently heard about the mass exodus of BMW owners switching to Tesla, and Model 3 unit outselling many of their closest competitors combined, why wouldn’t that be the case in Asia? Many of the police cars in Taipei are BMW’s so following the logic and trend observed here in the U.S., it’s not far-fetched to think it could gain traction. It’s also fairly well known that the Chinese now have more disposable income, better and newer infrastructure (just ask anyone in San Jose or anywhere in the U.S. about the wretched dwindling highway conditions we face), and a vast EV charging network.

However, the biggest reason why I think Tesla will explode in China is because of BRAND AWARENESS. The Chinese are super high-end luxury consumers and they indulge in their Louis Vuitton, Mercedes Benz, Maserati (heck, there’s even a Maserati sponsored 7-eleven in Neihu Technology Park close to Tesla’s showroom and service center in Taipei that looks like an Apple Store), and Tesla has a reputation for being such. Unless a Chinese brand like NIO can establish itself as a mass-producing luxury automaker, consumers will still gravitate to the Tesla brand.

Besides, I think Elon is banking on the China Gigafactory becoming a far better producing and efficient operation that is an evolution or version 2.0 of the Nevada plant. 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), and their active collaboration with Qualcomm for their autonomous driving technology. At some point there should be some kind of convergence and possibly a standardization of the platform so that all manufacturers can leverage the software much like OEM computer manufacturers with Windows operating systems. Tesla can collect royalties and be firmly entrenched in the auto industry for the foreseeable future.