What do you mean by China may be paying to build GF3? You mean China owns the building? I thought Tesla got a local loan for the build out.
I was wondering about the same thing as
@ReflexFunds: regardless of the source of funding, Tesla has to book all GF3 cash expenses as capex (or opex with a special note) - like they did when they paid for the land area lease in Q4.
This didn't seem to happen in Q1 or Q2: reported capex
dropped further.
This suggests the possibility that it is the Shanghai government who is paying for GF3 construction costs: the main building, the utilities and the road network - while Tesla is paying for the production equipment. Tesla has not disclosed the specifics of their agreement with the Chinese government yet.
Tesla's $500m Phase 1 capex guidance is just too low to be feasible for full capex of Phase 1 and 3K per week production (c.$7bn annual revenue, $1.5-2bn gross profit). I don't think Tesla is lying though, so the only conclusion is that Tesla themselves are not paying the full capex of Phase 1
They are building:
- A huge high tech factory at rapid speed with high construction staff overtime
- Full surrounding infrastructure including roads and electricity stations.
- Stamping, Body shop, Welding robots, General Assembly Line and Paint shop equipment.
Admittedly they are saving capex on Battery module/pack lines by sending the old LR pack lines from GF1.
In addition to the $500m Phase 1 capex guidance, Tesla did already spend $141m in 2018 on land purchase in Shanghai (accounted as a prepaid 50 year lease rather than capex).
We know Nio previously made a deal with Shanghai for its factory (though China later banned Nio from building the factory until Tesla's is finished). The deal was that Shanghai will build Nio's factory & rent it to Nio for free for 5 years & discounted for another 5 years. Shanghai also offered to guarantee local debt to finance half of Nio's $650m equipment capex.
One bit of info we got from Tesla on GF3 earlier this year was:
"As part of this project, we have agreed with the local government to spend approximately $2 billion in capital expenditures over the next five years (which is already included in our capital expenditure plans), and to generate approximately $270 million of annual tax revenues starting at the end of 2023. We believe the tax revenue target will be easily attainable even if our production were far lower than the volumes we are planning, although if we are unwilling or unable to meet such target or obtain periodic project approvals, we would be compensated for the remaining value of the land lease, buildings and fixtures and revert the site to the government."
I think Tesla's deal is different to Nio's, most likely Tesla do actually own the building, but they are just getting China to pay for it, or at least to offer a far below cost bid for the construction contract. It looks to me like Tesla promised a certain level of tax revenues in return for heavily subsidised construction costs, and if Tesla does not meet the tax targets they have to return the site to China as penalty.
What are your thoughts on the structure of Tesla's deal for GF3?
@neroden @Doggydogworld ?
