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Tesla’s China expansion hits speed bump amid industry overcapacity

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  • China cautious about approving production of new EVs, analysts say
  • Tesla aims to produce 450,000 cars a year at new factory
  • China’s EV production is 20% cheaper than other countries – Nio

SHANGHAI, June 16 (Reuters) – Tesla’s (TSLA.O) ambitious plan to expand car production in Shanghai, the world’s most valuable factory, is turning a former farmland now overgrown with wildflowers It all depends on whether China approves the development of 70 hectares (172 acres). .

Once asked by the Chinese government to help boost the development of the country’s electric vehicle (EV) industry, Tesla may now be a victim of its own success in the world’s largest car market. It is challenging the plan to utilize the cost advantage of the production of electricity for the export of electricity.

Rival executives said China’s national planner, the National Development and Reform Commission (NDRC), has urged all automakers to push for new plans due to concerns over overcapacity and an intensifying price war set up by Tesla. He was cautious about approving electric vehicle (EV) production plans. and analysts.

Bill Russo, founder and CEO of Shanghai-based advisory firm AutoMobility, said China has about 10 million spare vehicle capacity annually, which is expected to reach full North American production in 2022. estimated to be two thirds of the volume.

“As Tesla, I have a new product, so some might argue that I need a new factory to manufacture it,” he said. “But from the perspective of the Chinese government, all they see is an oversupplied market.”

In an impassioned May 2022 letter thanking the local government for their support during the COVID-19 lockdown in Shanghai, Tesla said it would build a factory in Shanghai, about 3 kilometers (1.9 miles) from its current factory. It detailed plans to add an annual production capacity of 450,000 vehicles to the new base. Based on retail prices, annual production is worth more than $18 billion.

Though not made public by Tesla CEO Elon Musk or Chinese officials, people with direct knowledge of the matter said the expansion came to light during his busy visit to China late last month. came out.

After meetings with senior Chinese officials, including Vice Premier Ding Xuexiang, Musk publicly says he told a small group of Tesla employees that there was “positive progress” in discussions about expanding the business without elaborating. The unauthorized official said.

Tesla and NDRC did not respond to requests for comment.

“Tesla has doubled down on its attacks on China, and after some deadlocks last year, Musk’s visit to China has calmed things down,” said Dan Ives, an analyst at Wedbush Securities. We are thinking about it and expect to announce progress in the coming months.”

Construction on Tesla’s Shanghai factory was completed less than a year after groundbreaking on site in 2019.

Reuters Graphics

Why Tesla needs China

Tesla’s reliance on China is complicated in the U.S., as the Biden administration’s incentives reward automakers to produce batteries and vehicles locally.

But Tesla’s Shanghai factory built about 711,000 Model 3 and Model Y last year, boosting its annual production capacity to more than 1 million, giving it a cost advantage over its competitors and expanding its presence in Southeast Asia and Canada. It was extremely important in promoting exports.

Tesla, which has set a goal of selling 20 million cars globally by 2030, up from 1.31 million in 2022, is in talks with India about possible manufacturing investments and has faced lawsuits from governments such as South Korea and Indonesia. Is receiving.

But rival Nio (9866.HK) says its production in China has a 20% cost advantage over EVs made elsewhere, citing China’s dominance over supply chains and raw materials. said there is.

However, as government concerns about oversupply grow and Tesla pushes ahead with its expansion into Shanghai, Chinese home appliance maker Xiaomi (1810.HK), which aims to enter the market, is making slow progress in obtaining production permits. not

U.S. luxury EV maker Lucid Group (LCID.O) has also expressed interest in building cars in China, but industry insiders say the chances of that happening are slim.

Xiaomi and Lucid did not respond to requests for comment.

Waiting for Tesla’s approval is comparable to the warm welcome it received five years ago when it first signed a deal to open a factory in Shanghai.

At the time, analysts suggested China was using Tesla to boost local EV development. Because Tesla’s strength forces weaker companies to move faster to survive.

“The script definitely flipped,” said AutoMobility’s Russo. “China needed Tesla to open up the market for retail consumers, and Tesla needs China because of the supply chain benefits of being here and the competition set up here. Because the standards make Tesla a more competitive company globally, and it’s a missed opportunity if they don’t “acquire units of that capacity.” ”

Reported by Zhang Yan and Brenda Goh.Editing: Jamie Freed

Our criteria: Thomson Reuters Trust Principles.

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