Tesla Inc. is close to finalizing a deal with the city of Shanghai to explore production in China. Moving the electric car production in order to lower its manufacturing and shipping cost, would be the firm’s most lucrative opportunity up till date. The EV maker reached an agreement on Thursday. The unique Tesla Shanghai deal would allow the EV maker to build plants in Shanghai’s Lingang development zone.
Tencent will serve as a passive advisor to the company.
China’s Electric Car Boom
Currently, China is leading the way in embracing electric vehicle technology. It is already the world’s largest auto market, and 28 million vehicles produced in 2016 is expected to grow to 40 million in 2040. After years of lackluster growth, electric vehicles sales in the country have soared – thanks to the government’s environmental reforms to lower carbon emissions. China sold more electric cars than the U.S. and Europe in both, 2015 and 2016.
The rise is fueled by foreign investment as well as the elimination of the vehicle tax on Chinese electric vehicles. Until September 2014, vehicle buyers were charged 10 percent tax at the purchase price. China’s electric car market is taking off, and there’s no reason why Tesla shouldn’t bear the fruits of it.
Ambitious Plans for Tesla’s Future
The Palo Alto, California-based electric car maker is still struggling to establish as the world’s biggest electric car market. Tesla’s deal with the city of Shanghai highlights a vote of confidence in Tesla’s position as one.
The Tesla Shanghai deal would give the car maker a competitive advantage against other international brands. Moreover, this will also enable it to better compete with local rivals as it would slash off a 25 percent import tariff that makes some of Tesla’s cars more expensive in China.
According to research from Nielsen, roughly 27 percent of Chinese consumers are up for buying electric cars. Meanwhile, 25 percent are interested in plug-in hybrids. By securing the deal, Tesla would capitalize on one of the world’s fastest-growing electric car market.
Through the Tesla Shanghai deal, the EV maker plans to increase production from 83,000 vehicles per year to 500,000 by 2018. Currently, Tesla is also working with the government of India to relax import duties. This is until it can figure out a way to build a local factory.
Tesla is scheduled to begin production in July 2017. The electric car maker is yet to launch the Model 3, a smaller, more affordable sedan, which would be more popular in China.