Elon Musk breaks ground on Tesla’s Shanghai 'gigafactory'

Roman Schwartz
January 9, 2019

Tesla broke ground on its first factory outside the USA on Monday with a facility in Shanghai. Tesla fell behind on its lofty manufacturing and delivery promises for Model 3, causing volatile stock prices and even prompting Musk to sleep at the Tesla factory.

The $5 billion investment comes at a tenuous time in relations between the US and China.

Tesla new plant in China will produce lower-priced versions of the Model 3 as well as the upcoming Model Y.

Gigafactory 3 was expected to produce around 3,000 Model 3 vehicles a week in the initial phase, ramping up to 500,000 vehicles per year when it became fully operational, Tesla said in a statement. Tesla CEO Elon Musk tweeted earlier on Monday. The company refers to a planned crossover that has yet to receive a formal name as the Y. The higher-priced models will be built in the US for export to China, said Musk.

"Aiming to finish initial construction this summer, start Model 3 production end of year [and] reach high volume production next year" the entrepreneur tweeted.

Tesla competes in China with local electric auto manufacturers Nio, BYD Auto, BAIC Group, and government-owned Shanghai Automotive Industries Corp.

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A local Chinese plant may be crucial for Tesla, which is struggling to stave off a potential dip in demand in the USA, its biggest market, after reductions in federal tax credits for EVs. "Affordable cars must be made on same continent as customers". Tesla said in October that it was operating at a 55 to 60 percent cost disadvantage due to tariffs and oceangoing shipping expenses to China.

The Shanghai government last month said mayor Ying Yong had visited the site and urged Tesla to "accelerate" work on the factory.

But the new factory would help Tesla avoid United States tariffs on auto imports into the country.

Musk previously announced that the company's smaller models - the Model 3 sedan and the upcoming Model Y SUV - will be made at the plant, but not the older Model S and Model X. There are signs that the Chinese economy is slowing, and being in the country and keeping all of the profits generated by the facility will be critical to its long-term success. In October of previous year, the company paid about $140 million to secure more than 200 acres of land for the planned factory.

Tesla has said it plans to use mostly local debt to fund the factory's construction.

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