Tesla to Build Cars in China

The Tesla will become the latest iconic American product to be built in China. Tesla Motors (NASDAQ: TSLA) is negotiating for permission to build a factory in the Shanghai suburb of Lingang, Bloomberg Technology reported.

Few details of the plan were included in the Bloomberg story which was apparently based on anonymous sources. To complete the deal, Tesla will need to find a local partner which should not be hard. A Chinese company named Tencent Holdings bought 5% of the carmaker earlier this year.

Entering the People’s Republic is a smart move for Tesla because the nation’s government wants to increase the number of electric vehicles there by ten-fold in the next decade. Tesla also hopes to get around China’s 25% tariff on imported vehicles.

This helps counter rivals like Jaguar, BMW and Volkswagen which have ambitious electric car plans of their own and massive footprints in China. Tata Motors (NYSE: TTM) is planning to bring out an electric Jaguar SUV next year.

Why Musk Needs China

Elon Musk needs China to help him bring his plans to produce 500,000 vehicles a year next year. To achieve that goal, Tesla will need more production and additional markets.

Having a production facility up and running in China will make it easier for Musk to build a Gigafactory in China. Tesla is finalizing plans for three additional gigafactories to complement the one in Storey County, Nevada. The most likely locations for those facilities are China, the American Midwest and Europe (possibly Finland).

Currently Tesla has just one auto factory a former General Motors and Toyota facility in Freemont, California, and a small assembly operation in the Netherlands. To achieve his goals Musk will need to build or open several additional factories.

Tesla is Going to India Next

China is not the only major market Tesla is heading to. Musk recently Tweeted that he is in talks with India’s government for a break on import duties.

India currently charges a 100% duty on imported duties. Musk wants a temporary waiver from that until Tesla can open a factory in India, Business Insider reported. That would enable Tesla to go on sale in India which has one of the fastest growing economies in the world this summer.

Tesla will need a waiver from some other Indian law requirements including a mandate that 30% of products be sourced locally within three years. Tesla obviously needs to enter India, which might become the world’s third largest auto market by 2020.

The Indian government has a strong incentive to grant the waivers because it wants six million electric vehicles and hybrids on the road by 2020. India is certainly a growing market for luxury vehicles like the Tesla, it had 2.36 million millionaires at the end of 2015 according to the New World Wealth Report, The Economic Times reported.

Musk also has an eye on India’s fast growing middle class as a market for his upcoming Model 3 sedan. The Indian middle class doubled in size over the last 10 Economic & Political Weekly reported. There are now around 23.6million people in India’s middle class, Credit Swiss reported.

The next logical steps in India will be to construct a gigafactory and begin auto production in that nation. Beyond that Tesla will have to start constructing a supercharger network on the subcontinent. One advantage Tesla will have in both China and India is tens of millions of first-time car buyers with no existing prejudices in favor of gasoline or diesel.

It looks as if Musk is taking steps to turn Tesla into a global auto brand. One wonders if he can succeed.

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