Tesla Inc (NASDAQ:TSLA) has its eye fixed on China. The automaker admits that a factory there is essential for bolstering its presence. Markets tied to electric and autonomous vehicles have long taken center stage in the People’s Republic. TSLA can no longer afford to downplay the vast opportunity the country offers.
Yet China is a complete circus of obstacles in the form of laws and regulations. Getting into the region is much easier said than done. There is little doubt that Tesla Inc is jumping through hoops right now. All that, just to score a decent factory deal with a key market in the east.
In China, start-ups that dedicate themselves to revolutionizing the auto scene are crawling out the woodwork. Each has deep pockets and a large backing in terms of investors and potential consumers. Situated in the region, new automakers gain several advantages, including more direct lines to Asia’s surging EV market.
Tesla Inc is certain that setting up shop in China will help it better serve the local consumer base. No doubt the need to rid itself of hefty import tariffs is a major incentive too. Elon Musk’s auto business reports that it is sitting down with the Chinese government. Allegedly, China’s Shanghai will host the very first Tesla plant in the region.
Last week, a company spokesperson reiterated Tesla’s commitment to an enhanced presence in China. According to the young automaker, much of its production will remain in the U.S. However, Tesla admits that ensuring markets get better access to company products and services is now a greater priority.
The Shanghai plant will form part of a range upcoming assembly sites “around the world to serve local markets.”
In 2016, it was seen that China accounted for around 15 percent Tesla’s revenues. That figure nearly doubles the deliveries made in the country compared to 2015. It is perhaps a massive indicator of the region’s hunger for innovative transport.
Also, no done deal yet for, TSLA
It is sources like Bloomberg that assert the factory’s establishment in Shanghai. City representatives are yet to respond to the allegations. However, widespread reports suggest that a preliminary agreement with the city is already in place.
It is important to note that a preliminary nod is still far from a done deal. There remains the possibility that current negotiation will not result in a Shanghai factory. China famously pushes laws which slant the tables in favor of local businesses. According a cited regulation, Tesla Inc will have to partner will a local Chinese corporation to get the venture going.
China is rife with international car brands. However, every one of them, from Ford to Chevrolet to Volkswagen and Mercedes-Benz, use jointly owned factories. Foreign companies often need to team with local corporations to do business in the People’s Republic.
In China, wholly owned international factories are not as rare as people might think. Negotiations can work to convince the Chinese government of other benefits. It is likely that Tesla Inc (NASDAQ:TSLA) is working on doing this right now. Benefits which are outside of a joint venture with a local company would, however, need a strong push.
China has Tesla Inc jumping through hoops too
However, China is no pushover when it comes to getting what it wants. Rejecting the option for a joint venture would leave the hefty 25 percent import tax in place. That is regardless of the fact that TSLA products would be build in the country. Choosing not to work with a local business will have Tesla Inc treated as a completely foreign company.
The China hoop-jumping doesn’t end their either. A recent announcement by the Chinese government states it will cease offering licenses for car production. That includes electric cars too. The country wishes to become a world-famous manufacture of EVs. It is a strategy which includes favoring domestic talent over foreign competition. The fact that TSLA has no license would force the firm to partner with a automaker which does.
Also, Shanghai’s automotive production scene has SIAC as its dominator. It is an major motor corporation that holds a monopoly over the city’s car manufacturing scene. Giants like GM and Volkswagen have given into the corporation’s influence in the city. Suspicions point at Tesla Inc (NASDAQ:TSLA) having to fend off SIAC as well.
Clearly, TSLA has a lot of negotiating to do. We have yet to see if the company will opt for a joint venture or succeed in entering the country independently. However, getting a plant up would still offer massive opportunities in the electric car-hungry region. Analysts agree that a factory in China would be achievement enough and well worth the payoff.