Tesla hopes to produce 500,000 cars per year at new Shanghai plant

Thai Cave Boys Rescue

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As the trade war between the us and China (as well as the rest of the world) escalates, Tesla announced Tuesday an agreement with Chinese officials to build a new factory in Shanghai, reports Reuters.

Chief Executive Officer Elon Musk sealed a crucial agreement Tuesday to start building its second vehicle assembly plant in the world. It'll take another two to three years for the factory to reach its capacity to build about 500,000 vehicles annually. The company's Model 3 unit seemed destined for what Musk called a "production hell", with the company having several product line suspensions in order to reevaluate manufacturing practices in the Fremont facility. During the first quarter, sales dropped 15 percent. Just recently, however, reports have emerged that Tesla had started offering test drives for the Model 3. "They will have to get capital".

The deal marks the biggest overseas foray yet for Tesla, which is looking to expand into global markets, plans that faced a potential threat from the intensifying China-US trade row. While the motorcycle maker's shares have slumped amid attacks by the president, Musk's plans have so far avoided controversy. It is expected to build about 500,000 cars a year, enough to rival Tesla's main factory in California.

The electric auto maker reported on Monday that its Q2/18 deliveries totaled 40,740 vehicles, a number that missed the Street's consensus expectation of approximately 51,000 vehicles.

CNET reports that the tensions between the US and China caused the electric auto maker to raise the prices on its Model S and Model X vehicles.

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A city government statement said the factory would be the biggest foreign investment to date in Shanghai, which is also a base for joint ventures between General Motors Co. and Volkswagen AG and a state-owned automaker. A plant in China also reduces shipping costs and potentially makes sourcing components more economical.

"I think that you'll see something similar to what they did in Nevada, with a partner like Panasonic", said Kallo, referring to the gigafactory that Tesla and its Japanese battery-cell supplier operate along near Reno.

No financial details were announced.

China is the world's largest auto market overall, with more than 28 million vehicles sold past year, and annual sales are forecast to top 35 million by 2025.

But the latest retaliatory tariffs mean importers will have to fork out a total 40 percent duty on all US -made cars they sell in China.

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The price increase was a direct response to China's new 25 percent tariff on certain American goods, including cars.

Tesla will be capable of producing about 1 million cars per year if both its Shanghai and Fremont factories reach their theoretical maximum outputs in the future. The government's target is 7 million vehicles a year by 2025. It's been an idea Musk has mentioned to investors since past year.

Auto brands in China are required to make electric vehicles at least 10 percent of their sales starting next year or buy credits from competitors that exceed their quotas. Revenues in the country doubled past year to more than $2 billion, accounting for nearly 20%of the company's total. The CEO has said that the company won't need to raise more money this year.

These prices are more than 70 percent higher than in the United States where the basic Model S sedan sells for $74,500.

"A factory in China will nearly certainly require an incremental capital raise", he wrote in a report to clients.

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