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article imageNew Tesla factory in China will crank out 500,000 cars a year

By Karen Graham     Jul 10, 2018 in Business
Shanghai - Tesla CEO Elon Musk sealed a crucial agreement Tuesday to start building its second car assembly plant in Shanghai, except, he left out one crucial detail - how much it’s all going to cost.
Construction will begin soon after approvals and permits are secured, and the first vehicles will roll off the line within roughly two years, a Tesla spokesman said in an email, reports Bloomberg. It will take about two or three years before the facility reaches its capacity of 500,000 vehicles a year.
The cost of the Tesla plant was not disclosed. However, a local government official said it will be the largest manufacturing project in Shanghai's history - funded at least partly by foreign investment.
“The biggest question right now for investors -- bulls and bears alike -- is how are they going to pay for it,” Ben Kallo, a Robert W. Baird & Co. analyst with the equivalent of a buy rating on Tesla shares, said in a Bloomberg Television interview. “They will have to get capital.”
The announcement of the deal to open a facility in China came just a few days after Tesla raised its prices on the Model S and Model X by over $20,000 (depending on configuration), due to the ongoing trade war between the US and China. But the previous 25 percent import tax didn't phase Tesla buyers in China who bought 14,779 vehicles last year and represented almost 20 percent of Tesla's revenue.
But China has raised its import duties on American vehicles an additional 15 percent in response to Trump's additional tariffs. But the move by Tesla is not a spur-of-the-moment venture. Musk had been talking about building a plant in China for some time - well before Trump slapped his initial tariffs on 1,300 Chinese goods.
However, by having a factory on Chinese soil, Musk can cut down on shipping fees all around, letting the company focus on the production numbers and profitability he's been chasing for years, according to Engadget.
The Tesla Model 3 Sedan
The Tesla Model 3 Sedan
Tesla
Tesla's factory in China is also considered the first time a foreign automaker will open up shop without a Chinese company as its partner, reports CNN Money. Tesla said it will be the sole owner of the factory.
The Chinese government has been under pressure from the United States and European countries over their forced joint ventures with foreign companies and China's alleged theft of intellectual property. So Tesla being a sole owner is a first. But even this agreement has some questionable amendments.
While China says Tesla will be the sole owner of the plant, the agreement with Tesla would also include an "investment agreement" between Tesla and the local authorities. This also includes an agreement that Tesla and the city of Shanghai would cooperate on technology and research and development.
Elon Musk was at a ceremony in Shanghai Tuesday for the announcement. "Tesla is deeply committed to the Chinese market, and we look forward to building even more cars for our customers here," said a company spokesman. "Today's announcement will not impact our US manufacturing operations, which continue to grow."
More about Tesla, Shanghai, Tariffs, increased prices, Model 3