Musk is set to appear at an event in Shanghai later today
According to sources familiar with the matter, Elon Musk, Tesla CEO, is scheduled to appear at an event in Shanghai later today. The meeting takes place in the midst of the brewing trade war between U.S. and China, affecting the pricing and eventually, the sales of the luxury all-electric vehicles. The tariffs come as a retaliation over the United State's import duties of 25% instituted last week, impacting over $34 billion worth of Chinese imports to the country. Naturally, the Chinese government made sure to leave an appropriate response.
***UPDATE 2 - Tesla says reports are true. It's a done deal. Tesla signed a cooperative agreement for Gigafactory 3 in China. As noted below, production is expected to be 500,000 annually.
***UPDATE - Bloomberg is reporting that Tesla is close to signing a deal that will create what's being referred to as Gigafactory 3 in China. It'll be able to produce some 500,000 vehicles per year and will likely be a primary site for production of the upcoming Tesla Model Y and a secondary location for Model 3 production. Here's what Bloomberg states:
Tesla Inc. is planning a factory in China with a capacity for 500,000 vehicles a year, its biggest step beyond the U.S. so far, according to people familiar with the matter.
Tesla is due to sign a memorandum of understanding with local entities in Shanghai, the people said, asking not to be identified as the information isn’t public.
This. in turn, made the prices of the Tesla Model S and Model X in China skyrocket. Currently, the Tesla Model S and Model X prices have increased by 150,000 yuan to 250,000 yuan (~$22,600 to ~$37,600), respectively, depending on the version.
While the tariffs may be one part of the equation here, to our knowledge, they are only speeding up the talks about a Gigafactory that Musk intends to open up in China. For Tesla, that would mean bypassing the imposed tariffs. In turn, that would allow the U.S. car maker to cover one of the most appealing and future-proof markets in the world with the competitive price vehicles. To make matters even worse, Tesla Motors is currently part of just a handful of luxury car makers that don't produce cars locally in China. And that, if not rectified, could hurt the company in the long run.
Musk confirmed the Tesla's factory bid in China in a Q1 2018 earnings call. But, there have been some issues regarding the matter. According to sources, some reports emerged that Tesla is having issues with the local Shanghai government concerning its factory ownership. In one hand, Tesla is demanding sole proprietorship, while China’s officials were supposedly calling for a local partner. Later on, the report was followed by a strict denial of any disagreement from Shanghai officials, stating that the local government and the electric car maker are on the same wavelength over the matter. This was followed by the Chinese officials revising their ownership laws, allowing a permit to be granted to Tesla, allowing the company to operate and establish a solely-owned factory in the country.
Tesla's future does look seemingly bright in the long run
The Chinese trip also comes in the middle of what Musk called the "short burn of the century". Tesla needs to become profitable, and right now, the time is right for that to happen. Musk's trips to both Shanghai this week and his previous visits to Beijing are coming as appropriate ways of electrifying its shareholders and investors - some of which was shaken last week when Tesla revealed subpar Q2 2018 delivery and production numbers.
The announced trip to China already impacted Tesla's stock (NASDAQ:TSLA) as their investors appear to have experienced a new bout of confidence, pushing the stock up 1.29% at $312.86 per share during Monday’s intraday, thus ending a weeklong nosedive. With the prospect of opening a local production facility in the world's most populous country and one of the world's most sprawling economies, all in the midst of a burning trade war might actually mean that Tesla gets pushed over the brink of profitability real soon.