Elon Musk starts work on his $2billion Tesla ‘Gigafactory’ in China

Elon Musk marks the start of work on his $2billion Tesla ‘Gigafactory’ in China amid Beijing’s trade war with Trump

  • Elon Musk jetted into Shanghai for the groundbreaking of his new Gigafactory 
  • Upon opening the factory will become the first foreign-owned car plant in China 
  • Once up and running it will produce the Tesla Model 3 in vast quantities
  • Its establishment is seen as a move to offset Tesla’s losses from the trade war 

Tesla broke ground on Monday for its Shanghai ‘Gigafactory’ where it plans to begin making its Model 3 electric vehicles (EV) by year-end, a first step in localising production in the world’s largest auto market.

At a ceremony at the site of the plant on the outskirts of Shanghai, Chief Executive Elon Musk joined the city’s mayor and other local government officials to formally begin construction of a factory that Tesla has said will cost around $2 billion.

‘We think with the resources here we can build the Shanghai Gigafactory in record time and we’re looking forward to hopefully having some initial production of the Model 3 towards the end of this year and achieving volume production next year,’ Musk said at the event.

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Elon Musk (second from right) performs a dance as he and several Chinese officials announced the beginning of construction at the factory site in Shanghai

The brand new factory will be the first foreign-owned car plant in China and will produce Tesla Model 3s

The so-called Gigafactory is China’s first wholly foreign-owned car plant, a reflection of China’s broader shift to open up its car market, even amid a trade war with the United States which has seen a rise in tariffs on cars imported from the U.S.

Producing cars locally is likely to help Tesla minimise the impact of the trade war, which has forced the EV maker to adjust prices of its U.S.-made cars in China. Keeping prices in check will also help Tesla fend off competition from a swathe of domestic EV startups such as Nio Inc, Byton and XPeng Motors.

‘Affordable cars must be made on same continent as customers,’ Musk wrote on Twitter ahead of the event.

China raised the import tariff on U.S. cars to 40 percent in July, but cut it to 15 percent from the start of this year as part of a trade war ceasefire. The lower rate will last until the end of March pending trade talks.

Tesla CEO Elon Musk and Shanghai’s Mayor Ying Yong attend the Gigafactory groundbreaking

Producing cars locally is likely to help Tesla minimise the impact of the trade war currently going on between the US and China

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Trade war aside, the carmaker is building the plant in an auto market that likely contracted last year for the first time in decades. However, sales of so-called new-energy vehicles (NEVs) – a category which includes Tesla’s battery-powered cars – continue to be strong in a country where the government aims to shift away entirely from combustion engine vehicles.

‘Shanghai Giga will produce affordable versions of 3/Y for greater China. All Model S/X & higher cost versions of Model 3/Y will still be built in US for WW market, incl China,’ Musk said in another tweet, referring to the worldwide market. 

Tesla has been pushing forward its plans for the 500,000 vehicle capacity plant after it secured a site in October, hiring staff, starting procurement for building materials and setting up a local financial leasing company.

‘Aiming to finish initial construction this summer,’ Musk tweeted.

Shares in Chinese suppliers to Tesla, including Tianjin Motor Dies Co Ltd and VT Industrial Technology Co Ltd, rallied on Monday after Musk’s tweets.

Musk and Shanghai’s Mayor Ying Yong wave to the crowd as they stand on stage during Monday’s proceedings

‘Tesla’s sales (in China) have dropped over the past few months because of high price caused by the tariffs. And the competition is getting more and more fierce,’ said Alan Kang, Shanghai-based analyst for consultancy LMC Automotive.

‘With the construction of the Shanghai factory, the faster the better (for Tesla).’

China and the US have been in a trade war for much of 2018 that has seen the flow of hundreds of billions of dollars worth of goods between the world’s two largest economies disrupted by tariffs. 

The U.S. wants China to address intellectual property theft and other aggressive measures that have driven Beijing’s efforts to supplant U.S. technological dominance.

Trump and Xi agreed to a ceasefire in the trade war, agreeing to hold off on imposing more tariffs for 90 days on December 1 while they negotiate a deal to end the dispute following months of escalating tensions.

China and the US have been engaged in a heated trade war throughout 2018 amid an argument over intellectual property rights 

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