On Monday, Elon Musk and Mayor Ying Yong of Shanghai broke ground on the very first Tesla factory to be built overseas. According to CNBC, the new location will help the electric car company deal with rising costs and avoid the tariffs that have been eating into their profits recently. Previously, all Tesla factories were located solely in the United States.
The location for the Shanghai factory, which is located on the outskirts of the busy city, was purchased in October for approximately $140 million. The company has struggled in recent months, as new tariffs have placed a heavy price on electric cars. According to a report issued on October 2, the company has been forced to operate at a 55 to 60 percent disadvantage, due to a combination of tariffs and the cost of ocean transport for their vehicles.
Musk and Tesla are hoping the new location will change that. Tesla has already proven very popular in China, and company officials are banking on the idea that making their electric vehicles more accessible will help to increase their numbers.
“China is becoming the global leader in electric vehicle adoption, and it is a market that is critical to Tesla’s mission to accelerate the world’s transition to sustainable energy,” Musk said in an official company statement.
Shanghai Giga output is just for greater China, not North America. Affordable cars must be made on same continent as customers.
— Elon Musk (@elonmusk) January 7, 2019
Tesla has indicated that they expect to produce up to 500,000 cars a year at the new factory in the first decade. According to Musk, limited production at the plant is scheduled to begin by the second half of 2019.
Besides reducing costs on tariffs and cutting the price of transporting vehicles, Musk is banking on the fact that Chinese consumers will grab Tesla vehicles at a reduced price. Tesla hopes to deliver Model 3 vehicles starting in March — at the dramatically reduced price of about $72,000. That’s 7.6 percent lower than the original price of the electric car. And this isn’t the first time the tech company has made a deep cut on costs. Last month, the company dropped the prices for the Model X and Model S by 12-16 percent.
But despite these concerns, Tesla officials are confident that they can fulfill China’s need for electric vehicles. With China holding the title of the world’s largest market for vehicles, they hope to have 7 million electric or hybrid vehicles being sold every year by 2025 — and that could spell big profits for Tesla and Elon Musk.
Although this is the first Tesla factory to be built overseas, it won’t be the last. Another overseas factory is already being planned. Tesla has indicated that Germany is the most likely spot for the next factory to be built.