Elon Musk: Tesla Negotiating To Start Production In China, Would Cut Pricing By A Third (Update)

OCT 23 2015 BY JAY COLE 25

Tesla Looks To Have Chinese Production Of EVs With A Partner In Two Years Time

Tesla Looks To Have Chinese Production Of EVs With A Partner In Two Years Time

Building EVs Locally Would Cut Prices By A Third

Building EVs Locally Would Cut Prices By A Third

Tesla’s Elon Musk is currently in China, and yesterday from a presentation at Tsinghua University the CEO said that talks with Chinese officials on local production had been productive.

So well it seems that Mr. Musk thinks it is likely the company will cooperate with a local partner, and production plans could start in as little as 2 years if current negotiations are successful.

Update Tesla clarified an earlier statement (due to transcription issues) that production could start in 2 years to the company is currently negotiating in China for local production

Signing a joint venture deal with a Chinese automaker is a near “must do” if one hopes to sell cars in volume in China, a fact Tesla has found out all to well since the brand launched in the country with very high hopes (the company had initially pegged China-based sales to account for 30-35% of the net total Model S moved for 2014).

Reuters states today that the local media puts employee reductions at the company in China by “30 percent of its 600 staff”.

Tesla Model S Visits The Great Wall

Tesla Model S Visits The Great Wall

By setting up domestic production in the country, Mr. Musk says that will cut the prices of an EV by as much as 33% to the Chinese consumer; and when you are looking to sell an affordable EV in the future (such as the Model 3), you need to have that kind of price competitiveness with your peers.

In related news, Tesla reported that the company has sold 3,025 Model S sedans in China this year, which is already outpacing the 2,499 moved in 2014 (via vehicle-licensing data compiled by the China Automobile Dealers Association).

Reuters

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25 Comments on "Elon Musk: Tesla Negotiating To Start Production In China, Would Cut Pricing By A Third (Update)"

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What qualifies as “made in China”? Why not just have them put a little bit of the final assembly together at a Chinese partner’s facility and call it good?

What will this mean for future production if it reduces the cost by 1/3rd ?

Cost for a *chinese* customer is reduced by 1/3rd.

Mostly meaning that Tesla avoid high import taxes when importing cars from the US. How much of this 1/3rd can be accounted for by lower chinese wages etc is uncertain.

It does look like they are talking of complete car assembly (nothing said about battery pack) – and nut just like they do in Europe (adding wheels and battery pack to otherwise complete, US-built cars)

Yes I realise that, I was thinking more along the lines of all production being moved there for global distribution ?

Gigafactory in Nevada soon though.

It’s been said that Tesla will need a second auto assembly plant to reach its goal of 500,000 cars per year by 2020. China would seem to be the best place to set up the second plant, because that will substantially increase Tesla’s ability to sell in China.

Whether or not it will be economically feasible to assemble cars in China and export them to North America, or Europe, is another matter. It may only make sense to sell those in Asia, plus Australia and surrounding areas.

Fremont is capable of manufacturing 500k vehicles per year.

No legacy automaker exports from China, you only collect 49% of the profits. Anywhere else and you get 100% of the profits.

This is good counter PR to the recent reports of poor reliability.

LOL not exactly my thoughts

Meaning…?

The future Tesla factory list is getting longer and longer:

Musk wants to open a battery plant in Germany:
http://bit.ly/1jYawpD

Musk wants to open a R&D center in the UK:
http://bit.ly/1jYawWy

Musk wants to open a car factory in Europe*:
http://bit.ly/1jYazl2

Musk wants to open a factory in Texas:
http://bit.ly/1jYawWz

* currently more of a final car assembly than a real factory

(List courtesy of Alberto Zaragoza over at SeekingAlpha).

There reality-announcements gap is widening at Tesla imho.

Seriously, where will all the money be coming from?

Here’s Tesla cash-flow as reminder:

Maybe the new CFO can answer these questions (by the way, where is he/she)?

I fully expect the Tesla bubble to burst but the questions are when and what will be left afterwards. Anybody that follows the stock market has seen this happen many times before, a company generates excitement, the costs and the stock prices soar then the market matures and stock price plummets to match earnings. But the EV market is in flux right now and I would not expect the market to mature for at least ten years. So tighten your seat belts, we are in for a long, bumpy and scary ride.

Given that Tesla’s stock price was recently down nigh-on 50% from its all-time high, I’d say the ‘bubble’ has popped already in a slow-mo kinda way. But as far as future company worth is concerned I would would be more inclined to listen to Morgan Stanley than you, Dan! MW

tftf said:

“The future Tesla factory list is getting longer and longer:

“There reality-announcements gap is widening at Tesla imho.

“Seriously, where will all the money be coming from?

“Here’s Tesla cash-flow as reminder:”

Thanks for posting that chart. But I guess you completely missed the actual meaning of the chart. The meaning is that Tesla is investing more and more money into increasing production, for improved future growth.

Anyone who doubts the reality of Tesla’s plan for rapid growth over the next 5-7 years only needs to look at the Sparks, Nevada area, and see the reality of rapid Gigafactory construction.

They should change their plans. Open the battery plant in UK and open the R&D in Germany so that I can finally apply… 😉

ttft you ware a persistent little FUD-ster aren’t you? You’ve already been thoroughly spanked on the teslmotorsclub forum. Massive cash burn to build gigafactory and tool up for the X launch was guided long ago. Spending money on things that will make you money later is called investing, not losing money. Even if it shows up as a “loss” on a quarterly report. Calling into question the speed of naming a new CFO is your new pet conspiracy theory? Just admit you’re trying to short TSLA.

If you have been keeping up with the EV news you know that EV sales are booming in China right now. There were over 10,000 units sold in June alone. But less than 2% of the EV sales were of non-Chinese manufacturers. Of the non-Chinese manufacturer sales Tesla actually gets the lion share. Protectionism runs rampant in China. An non-Chinese manufacturer that wants serious sales in China, it appears, has obtain partners in China and obtain the perception that it’s a Chinese manufacturer.

Yeah its rigged. You’re damned if you do or damned if you don’t when it comes to dealing with the Chinese system.

And because of the rules on IP, the foreign manufacturers make cars that are 1 generation behind.

They will undoubtedly sell more cars that way, more of a prelude for the Model III, since that is a car that will be aimed squarely at China.

Probably not a prelude to the Model ≡, at all. Tesla plans to start making the Model ≡ in two years… the same time frame as Elon is now saying he wants to start production in China.

Coincidence? I think not!

Assembling Tesla cars in China will be good for Tesla’s sales there; no question about it. Hopefully Tesla will be able to source its parts from other countries, as Apple does, to maintain quality; to avoid the rampant problems with poor quality control and outright substitution of counterfeit parts that is so rampant in China’s industry.

The troubling question is just how much of its trade secrets Tesla will have to give up to secure the deal. China is notorious for extorting intellectual property from foreign (non-Chinese) companies as a precondition to allowing them to set up business there.

Well since Tesla already opened up all its patents then this is much less of a concern then it is to other auto companies.

Patents and intellectual property are not the same thing.

OT, but has anyone else read the down on Tesla piece by Bob Lutz in Road & Track? What’s he up to?

Anybody want to bet that Tesla will produce cars in China within two years?

I’ll be happy to take the other side of that one.