Posted on June 21, 2016 by Matt Pressman
Tesla Motors [NASDAQ: TSLA] is showing growth in its production capabilities. Do they need to open factories around the world? We'll get to that in a minute. But first, according to Barron's yesterday, Wall Street analysts from RBC visited the Tesla factory and wrote a positive note, stating: "Tesla seems to have made progress toward 2,000/week production run-rate... [and] Tesla is confident they can ramp Model 3 quickly – a) technology will be relatively standard, b) paint capacity is already at 250k, and can go to 500k with limited capex, c) stamping needs modest investment. Incremental capex really going to Model 3 robotic line and final assembly line which needs to be built."
Image: Contract Hire and Leasing
That said, Tesla management have noted the need to go beyond Tesla's Fremont factory and open other production factories around the world. During the 2016 first quarter earnings call, Tesla CEO Elon Musk admitted, "at some point its going to make sense to have a plant in Europe and China... [and that it] makes sense to do localized production on a continent basis." At this time, Tesla does have a smaller final assembly and distribution facility in Tilburg, Netherlands. But, is it possible Tesla could open open its first full-fledged production base in China? Well... it appears something could be brewing in Shanghai.
Image: Auto Express UK
Yesterday, Bloomberg reported, "Shanghai has emerged as the front-runner to become the production base for Tesla Motors Inc. in China in an investment that may be valued at about $9 billion, according to a person with knowledge of the matter. Jinqiao Group, a Shanghai government-owned company, has signed a non-binding memorandum of understanding with Tesla on building its production facilities in the municipality, said the person, who asked not to be identified because the negotiations are private. Each party may invest about 30 billion yuan ($4.5 billion) in the partnership, with Jinqiao putting up land for most of its share."
Above: Last year, Tesla also opened their Shanghai Hongqiao Store and Service Center (Source: InsideEVs)
Why would Tesla open a factory in China? "Manufacturing in China would allow Palo Alto, California-based Tesla to avoid a 25 percent import levy, making its electric vehicles more competitive... [and] Elon Musk said in January that the automaker is seeking a Chinese production partner and has held 'a number of high-level meetings' with the government." Tesla wouldn't comment further and Jinqiao Group denies reports but a source says, "the location of Tesla factory is still under the stage of evaluation therefore the company has not signed off on any memos." But, Tesla has been moving aggressively into China. Just recently, Tesla started deliveries (see video below) of the Model X in China.
Electric vehicle growth is on the rise in China (see chart below) -- China Daily reported: "China has become Tesla's second-largest market after the US, with a more than 300 percent annual growth rate. Zhu Xiaotong, general manager of Tesla China, said the company plans to increase the number of its outlets in China from the current 17 to about 30 by the end of the year. Zhu said the company is speeding up the rollout of its charging point network in China. The 100th 'super charging station' will be located in Beijing this year." And, confidence is high according to Robin Ren, vice-president of Tesla and president of its Asia-Pacific region: "Stimulated by the impressive number of orders of Model 3, we are now making a new capacity plan."
Source: China Daily
And growth is happening all across Asia, Automotive News reported yesterday: "Tesla Motors Inc. is preparing for its debut in South Korea... The maker of Model S sedans listed on its website four new positions for sales and engineering in South Korea and one recruiter for the country, who will be based in Japan. Tesla has registered its corporation and plans to set up an office in Seoul." South Korea is also among the new countries where the Tesla Model 3 will be offered as well.
Image: Tesla Motors
With Tesla's expansion plans taking hold in the Asian market, we'll keep you posted on progress in the region. And, the importance of China in particular cannot be emphasized enough as the International Energy Agency just recently reported, "In 2015, China became the world’s largest electric car market." And, if a production facility in Shanghai does come to fruition, it's likely that Tesla's China sales would accelerate with the country's 25% import levy on its vehicles being eliminated.