Tesla May Invest Billions Into Factory In China

1 year ago by Steven Loveday 28


Shangai may be the new top choice for Tesla Motor Co. to build another electric vehicle factory. It is being reported that the company is planning to invest $9 billion and has signed a a non-binding memorandum with Jinqiao Group. Bloomberg reported:

Image Credit: Evannex

Image Credit: Evannex

Jinqiao Group, a Shanghai government-owned company, has signed a non-binding memorandum of understanding with Tesla on building its production facilities in the municipality, said the person, who asked not to be identified because the negotiations are private. Each party may invest about 30 billion yuan ($4.5 billion) in the partnership, with Jinqiao putting up land for most of its share, the person said.

The report only referenced the one source that will not be identified. Tesla hasn’t commented on the deal and nothing official has come from sources at the Jinqiao Group or the Chinese government. There have been other reports that Tesla has been visiting the area and is in talks with possible partners.

Tesla CEO Elon Musk spoke recently about the plans to find a location and a partner for a plant in China by the middle of this year. Tesla VP For Global Sales And Service, Jon McNeill also spoke of the plans. Nothing official was revealed, but it seems there is forward movement now.

Musk stated previously that a factory in China, while being large scale, would only be utilized to meet local demands. Local demands should prove to be huge though as China is the largest auto market on the planet and the second largest in terms of Tesla Model 3 reservations. China mandates that if a company wants to come in and manufacture in the country and avoid the 25 percent import tax, a local partnership is required.

Enormous factories are part of Tesla’s facade. The Tesla Gigafactory will have the biggest building footprint on Earth at 13 million square feet. The Fremont Factory, at 5.3 million total sq. ft. is one of the largest buildings in the world. Rarely mentioned are Tesla’s “smaller” factories. The Tilburg, Netherlands final assembly factory is one example and is barely small at 840,000 sq. ft.

In another report . . .

Reuters looked into the information provided by Bloomberg and has just reported:

A Shanghai company denied a report that its controlling shareholder signed a non-binding agreement with Tesla Motors Inc to build a factory in Shanghai, according to the firm’s exchange filings.

Shanghai Jinqiao Export Processing Zone Development Co said its parent company Jinqiao Group had not signed an agreement of any kind with the U.S. automaker, in response to a Bloomberg report that the two sides had signed a memorandum of understanding.

It is important to note that Bloomberg didn’t have any “official” verified information, and no where did it say that anything other than a non-binding memo was referenced. Although the companies aren’t committing to the public yet, it is becoming more clear that Tesla is actively in process to follow through with movement into China as soon as possible.

Source: Bloomberg, Reuters

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28 responses to "Tesla May Invest Billions Into Factory In China"

  1. James says:

    4 big questions for me are:

    Is Tesla feeling major heat in keeping M3 costs down?

    Would they import M3s to N. America from China?

    Would Americans buy them?

    $4.5 billion seems immense for a company that is barely scraping by building the Gigafactory 1 project piece by piece – and who has yet to have Panasonic fully invested in Nevada.

    Banking on those pre-orderers here and around the world – waiting 3 years + for their cars is wishful thinking, in my opinion.

    It’s scary folks. I really want them to succeed.

    1. JakeY says:

      You seem to have a severe misunderstanding of the purpose of a factory in China. It is only to avoid the 25% import tariff when selling cars in China, not to make cars to ship here in the US. This is exactly the same reason they built their European factory.

      So your questions are not applicable in any way.

      Anyone who has been following Tesla would have no surprise about this. Tesla talked about this two years ago before they even had the European factory and before the Model 3 was even known as the “Model 3”.
      http://www.bloomberg.com/news/articles/2014-04-20/tesla-to-start-model-s-sales-to-china-s-elusive-motorists

    2. jelloslug says:

      I cannot believe you seriously posted all of that…

    3. Pushmi-Pullyu says:

      James said:

      “Banking on those pre-orderers here and around the world – waiting 3 years + for their cars is wishful thinking, in my opinion.”

      It’s not “wishful thinking”, it’s making a gamble on future sales. It’s a gamble which Tesla Motors has made several times already, and so far (knock on wood!) it has succeeded every time.

      Yes, it’s a risk. But it’s a risk which is necessary for Tesla to grow. Building a new auto assembly plant, or equipping an abandoned one, takes billions of dollars in capital investment. Mass production of automobiles is a capital-intense, thin profit margin industry. That’s one of several reasons why Tesla Motors is the only successful new auto maker operating in the USA since before WW II.

      The “letter of intent” described in this article may or may not be a rumor. But there is little doubt that Tesla will be building or renovating an auto assembly plant in China, and probably will start doing so fairly soon, if they’re serious about ramping up production of the Model ≡ quickly.

  2. James says:

    I guess I could say with Musk it’s always been: “Go big or go home!”

    When I read this stuff, I just see some point at which Tesla just implodes.

    Surely the rest of the auto industry, Big Oil and Gas surely hopes this will happen A.S.A.P..

    1. MikeG says:

      I think the days of smothering Tesla or SpaceX in the crib are long over. They nearly went bankrupt in 2008-09, but now can raise boatloads of cash to grow the company.

    2. Pushmi-Pullyu says:

      The company performance of Tesla Motors has confounded the expectations of the majority of financial analysts, and has done so repeatedly. The astonishing and swift success and growth of Tesla Motors is one of the most remarkable business success stories ever… and has lead a lot of stock shorters to repeatedly whine and gnash their teeth! 😀

      Is Tesla’s amazing success luck, or brilliant business acumen on the part of Elon Musk? Probably some of both.

      Luck can’t last forever. But let’s hope it lasts at least long enough for Model ≡ sales to become solidly established in the marketplace! If that’s a success, then Tesla could probably withstand a future major failure.

  3. scott franco (No M3 FAUX GRILL!) says:

    Seems like everyone here is concentrating on what is happening now. Tesla is thinking 3-5 moves ahead.

    1. taser54 says:

      Tesla doesn’t have the cash to think ahead.

      1. John says:

        That’s never really stopped Musk before…now has it?

      2. Rob Stark says:

        Tesla can raise $1.7B on an oversubscribed secondary offering on Wall Street in less than a week. On very favorable terms.

        Tesla can also sell bonds to SpaceX (the Musk Keiretsu) or convertible notes to Larry Page,Sergey Brin or Google/Alphabet.

        Capital is no concern for Tesla when making 5-10 year plans.

        1. pjwood1 says:

          I think part of the point is “plans change”. We’re looking at a company recently turning less to self-funding. The last raise was dilutive to equity. The one before it was using convertible bonds and a ~$320 conversion price (that never happened). I don’t see capital getting cheaper, for Tesla, even if it stays relatively cheap.

          They’re betting more than the company, with these moves.

  4. JySubaruOutback says:

    Tesla will need to raise another $4.5B in capital. Blows my mind, Tesla is able to get away with this.

    1. kdawg says:

      There are a lot of rich Chinese people.

      1. JySubaruOutback says:

        That’s only half. Tesla has to come up with the rest.

        1. kdawg says:

          Why? VCs exist in China that would invest in Tesla and it’s local partner.

          1. no comment says:

            VC’s are global operations these days, but tesla is well past the VC stage. if they were going to raise cash, they would most likely do a stock offering.

            issuing stock is very expensive, but people have raised interesting questions about tesla’s cash position, so it would be interesting to see how tesla would come up with $4.5 billion.

            1. kdawg says:

              If they open up a Chinese division, 1/2 owned by a Chinese company, I could see Chinese investors coming on board.

              1. Tesloid says:

                They will, with boatloads of money in instants

  5. Get Real says:

    They are able to do this because they represent the future and their is tremendous demand for compelling EVs as they move downmarket and therefore tremendous profits to be made as the company grows.

    As scott franco said, Tesla is thinking and acting 3-5 moves ahead of all the laggard OEMs who are mostly dragging their feet and protecting their dino-mobile sales.

  6. Someone out there says:

    Where are these $4.5 billion coming from? Tesla just raised $1.5B just to stay afloat and they are also committed to expanding the Gigafactory, Supercharger network, service network, model 3 production… Tesla should be careful not to spread itself too thin.

  7. Get Real says:

    Well, we don’t know since their is no official announcements rather only speculation about the amount.

    In any case, a Chinese factory would be a JV so probably 1/2 the money would come from the Chinese and as far as raising money Tesla has no problems doing that despite the shorters who post here.

    Big institutional investors recognize the massive potential of Tesla to grow and produce large profits going forward.

    1. Pushmi-Pullyu says:

      Get Real:

      “Big institutional investors recognize the massive potential of Tesla to grow and produce large profits going forward.”

      Absolutely correct. I’m quite surprised to read all the skepticism expressed in comments here about Tesla’s ability to borrow more money. Tesla has already borrowed quite a bit; that’s how it has been able to grow so rapidly. The only question is how favorable the terms will be that Tesla can get, not whether or not they can find someone to loan them the billions they will need for their Chinese venture.

      I’m not even a “financial guy” yet I know that much about Tesla Motors.

  8. no comment says:

    $9 billion suggests to me that there is going to be a battery manufacturing facility in addition to a car manufacturing facility. in addition, i also suspect that this facility is going to make cars for the china market – meaning cars other than model S/X/3.

    1. Get Real says:

      I’m sure that a future Tesla chinese factory will produce vehicles/batteries for all of the Asian markets to reduce shipping monetary/environmental costs.

  9. Terawatt says:

    Ni hau

  10. jmac says:

    Musk may be patterning his company after the Amazon model. I recently ran into an article in the Intl. Bus. Times from December of 2013. It’s quoted below:
    ——————————————–

    “So what’s with Wall Street’s love affair with Amazon.com?

    “The company barely ekes out a profit, spends a fortune on expansion and free shipping and is famously opaque about its business operations.

    “Yet, investors continue to pour into the stock, pushing up the company’s share price to $388, a nearly 400 percent rise since the end of the company’s third quarter in September 2008.

    “At that time, Amazon’s net profit margin was 2.8 percent. By September 2011, that number fell to 0.6 percent. A year later, it was losing $274 million on net sales of $13.8 billion. And in the latest quarter, ended Sept. 30, the massive e-tailer reported a $41 million loss on $17 billion in sales.”

    http://www.ibtimes.com/amazon-nearly-20-years-business-it-still-doesnt-make-money-investors-dont-seem-care-1513368

    Amazon is only marginally profitable despite being in business since 1994. The stock does not pay a dividend, yet sells for a lofty $715 a share as of 21 May ’16, nearly twice what it did in 2013. Aside from the stratospheric stock price, the company also made a recent Forbes list of “The Ten Stocks That Should Pay A Dividend, But Don’t”.

    The stock is probably overpriced at $700 bucks a share, and should be split. Just a single lot of 10 shares sets a man back over $7,000.

    In spite of all this, Jeff Bezos continues to sail along. Many of the same criticisms made against Amazon and Bezos are now being leveled at Musk. Elon needs to call Jeff and ask him how Amazon weathered the storm.

    1. Pushmi-Pullyu says:

      “Many of the same criticisms made against Amazon and Bezos are now being leveled at Musk.”

      And have been for years now. Yes, the two companies do appear to be following the same business model. And those complaints about Amazon.com not being profitable suddenly stopped when Amazon.com became the world’s largest retailer… and slowed or stopped its growth, making it suddenly cash-flow positive. It had been profitable for some time, just like Tesla. Amazing how “financial guys” confuse “investing more in company growth than the company makes in profits” with “not profitable”. Two very different things! Accountants keep track of profits and capital investments separately; it’s more than a bit strange that so many investors apparently confuse the two.

      “Elon needs to call Jeff and ask him how Amazon weathered the storm.”

      I rather suspect that Elon and his financial advisors have studied Amazon.com’s business model very closely indeed.