Electric car-maker Tesla (NASDAQ: TSLA) is going worldwide.
Last week, the company announced that it has reached an agreement with the Shanghai city government, allowing Tesla to set up one of its wholly-owned manufacturing facilities in Shanghai.
As you may know, China’s electric vehicle (EV) market is growing at a rapid pace. According to McKinsey Quarterly, approximately 375,000 EVs were manufactured by Chinese original equipment manufacturers (OEMs) in 2016 — that’s 43% of EV production worldwide.
And China also has the largest number of EVs on the road, with the U.S. coming in second. This number will only continue to grow, especially since China has announced that it’s setting a deadline for automakers to end the selling of fossil fuel-powered vehicles.
China is the first country to make this push and to have the deadline set so soon. At an auto forum in Tianjin, China, last month, Xin Guobin, vice minister of industry and information technology, said the Chinese government is working with other regulators on a timetable for ending the production and sales of fossil fuel-powered vehicles.
This will have a huge effect on the environment and an even bigger effect on China’s auto industry. So, Tesla’s decision to create a manufacturing facility in Shanghai couldn’t come at a better time.
The Shanghai city government is allowing Tesla to create its facility in the city’s free-trade zone, which would make it the first of its kind for a foreign automaker. This agreement may also assist Tesla in decreasing its production costs, but at the same time, the company would still experience a 25% import tariff from China.
This arrangement would bring Tesla one step closer to becoming a global carmaker with access to one of the biggest EV markets, which is projected to keep growing.
And this brings up the idea of Tesla growing not only its EV manufacturing facility but also its gigafactories overseas. Earlier this summer, Tesla CEO Elon Musk announced that there were two or three more Tesla gigafactories coming to the U.S.
Musk said the company would announce the locations of those gigafactories toward the end of 2017. At the time of this announcement, it’s rumored that we should also expect overseas locations, as well.
The announcement of a manufacturing facility in Beijing could be marking the beginning of Tesla’s expansions of its factories, which would tap into more business if it were able to build a gigafactory in China. The rumors say there may even end up being a gigafactory in Europe and another in Asia.
If you’re not yet aware, Tesla’s Gigafactory 1 is an operational lithium-ion battery factory, which is a perfect business plan. Tesla has already been established as an EV automaker, but in order for one of its cars to operate and have power, the EV will need a lithium-ion car battery — essentially the heart of the vehicle.
Having a lithium-ion battery factory and an EV manufacturing facility in the same country overseas would assist Tesla in speeding up its production. It would also allow other EV companies to start using Tesla’s lithium-ion batteries for the EVs they manufacture.
Tesla is thinking globally. The time to become a key player in China’s growing EV market is right now. And Tesla is making its move in becoming a prevalent company in China. And while other companies are working out the finer details, Tesla is taking action to immerse itself in a market that’ll be expanding more and more every year over next few decades.
Until next time,
Jennifer Clark
Pro Trader Today