Sustainable Energy

Tesla Plans a Chinese Factory

By setting up manufacturing facilities there, the firm will be able to dodge a weighty 25 percent import levy.

Until now, Elon Musk’s automaker has invested in huge and modern manufacturing facilities in America. Now, it’s looking to spread those operations to China.

Bloomberg reports that it believes Tesla has signed an agreement with the city of Shanghai to investigate the idea of setting up a Chinese manufacturing plant. A previous report suggested that the negotiations would allow the automaker to set up a factory in the Lingang development zone of Shanghai, though it would be on the condition of setting up a joint venture with a local partner.

The decision to set up a plant in China makes sense for Tesla. As Quartz has pointed out, China is the largest electric-vehicle market in the world: in 2016, the nation registered 352,000 new electric vehicles, compared with just 159,000 in the U.S. But Tesla vehicles imported into China attract a painful 25 percent sales tax, making the prices of the automaker’s current models, which are already at the premium end of the market, eye-watering.

No surprise, then, that models made by Chinese manufacturers are proving more popular in the country.

But Tesla is getting ready to start delivering its own affordable car, in the shape of the Model 3, as soon as this summer. With the new vehicle set to cost $35,000, it could be rather more competitive with Chinese-built models than its current offerings—if it doesn’t attract that pesky 25 percent tax.

Tesla is not the only American company that's recently tried to set up shop overseas in order to crack foreign markets. Apple is increasingly finding a market in India, but its penetration remains limited because it isn’t allowed to open stores in the country unless it buys manufacturing materials from Indian vendors. At the moment, it doesn’t, so Apple is looking to set up a manufacturing plant in India, which would satisfy the restriction—but the country’s government is still trying to quantify Apple’s commitment to its economy.

Ultimately, both Apple and Tesla will have to satisfy whatever whims are laid down by the governments they are working with—and they will invariably be fiscal. But one nonfinancial question does loom over a Chinese Tesla factory. Working conditions in the Asian nation are notoriously troubling, but they’re reported to be pretty brutal in the automaker’s plant in Fremont, California, too. What will a combination of the two be like, exactly?

(Read more: Bloomberg, “Building Tesla,” “What It’s Like to Be a Worker in Tesla’s Car Factory,” “The World’s Largest Electric-Vehicle Maker Hits a Speed Bump”)