Tesla signs agreement with Shanghai Government to build its second global auto plant

Tesla Inc. has signed a preliminary agreement with Shanghai Government to build its second auto plant other than its U.S. assembly plant, the Shanghai government said in statement. The electric-car maker takes a big step in overseas expansion with a planned capacity of 500,000 vehicles a year for the proposed plant.

Bloomberg reported earlier that Elon Musk, Tesla’s CEO, would be in Shanghai for an event with the government on Tuesday but Tesla made no official statement on the agreement plant.

The escalating trade disputes between the U.S. and its trade partners are pushing automakers to expand production facilities outside the country, especially in China, while President Trump has been trying to bolster manufacturing in the U.S.

Tesla is looking to expand its capacity and reach global markets beyond its lone car-assembly plant in Fremont, Calif., with a battery factory in neighbouring Nevada. Tesla has also said it will reveal plans toward the end of 2018 to build a plant in Europe.

Last week, China increased the import duty on U.S.-made cars to 40% as a counter measure on US import tariffs, prompting Tesla to raise prices.  The automaker has been discussing with Shanghai government on the prospect of local manufacturing since last year. A plant in China, according to the automaker will cut shipping costs and make procurement of components more economical.

The company has boosted prices of Model S sedans and Model X crossovers in China by as much as $30,000 after Beijing imposed additional duties on American-built autos. This has made the affordability tougher for its consumers in its No. 2 global market.

In November, Musk said Tesla will start production in the world’s largest auto market after three years. He also announced the plant will produce a couple hundred thousand vehicles a year for buyers in China other parts of Asia. Tesla probably will make the smaller Model 3 sedan and upcoming Model Y crossover in China, rather than the pricier Model.

China, being the fastest growing auto market presents a massive growth opportunity for Tesla and rivals such as BMW AG and Daimler AG. Sales of New-Energy Vehicles -- a category that includes battery-powered, plug-in hybrid and fuel-cell vehicles, according to the China Association of Automobile Manufacturers, reached 777,000 units last year and could surpass 1 million this year. The government’s target is 7 million vehicles a year by 2025. This is going to boost demand in the manufacturing and the aluminium and other metal sector like never before.

Tesla sold 14,779 vehicles in China in 2017 and contributed about 3% of the nation’s battery-powered electric-vehicle market. China accounted for 17% of Tesla’s revenue for 2017, according a filing with U.S. regulators. Tesla produced 5,031 Model 3s in the last week of the second quarter in its Fremont plant generating solid earning.