Tesla has been racking up impressive sales figures in the Chinese market. In the first five months of 2023, the brand sold over 200,000 locally produced cars. Much of the success is attributed to Giga Shanghai, which is responsible for half of Tesla’s global production.

Earlier reports highlighted Tesla’s expansion plans in Shanghai to meet increasing global demand. The brand even sought regulatory approval to increase Giga Shanghai’s footprint, with a target of increasing powertrain production capacity from 1.25M to 1.75M units annually. The plan also includes adding a new battery line.

A new report suggests that Tesla’s ambition might have hit a bureaucratic hurdle. China’s National Development And Reform Commission (NDRC) has been skeptical about approving new manufacturing plans due to oversupply and deepening price war concerns.

The Austin-headquartered brand reportedly wants to convert 70 hectares of former farmland, currently covered in wildflowers, for its new site. The new location is just 1.9 miles away from the current plant.

Analysts suggested that Tesla’s price cuts in China could lead to small players shutting shop. Tesla can sustain price cuts, but many of its Chinese rivals can't. The China Association of Automobile Manufacturers even asked for an end to the price war.

Tesla may want to expand, but from the Chinese government’s point of view, they’re dealing with excess output, Bill Russo, Shanghai-based CEO of advisory company Automobility told Reuters. In the early days, China needed Tesla to spur growth in EV sales. But now the coin has flipped, as Tesla wants to benefit from lower production costs in China to meet its global demand, he added.

Tesla relies heavily on Giga Shanghai for exports to Europe and Asia. Recently, a massive Canada-bound Tesla shipment of Model 3 and Model Y was captured by a drone near the Shanghai port.

Lucid Motors and electronic consumer goods maker Xiaomi are also seeking entry into the Chinese EV market, but their chances of getting regulatory permits seem low, according to the report.

CEO Elon Musk recently visited Giga Shanghai, and also met with top officials in the Chinese government, including Qin Gang, the foreign minister, and Ding Xuexiang, China’s vice premier and one of President Xi Jinping’s closest aid.

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