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Tesla’s China factory will make or break Elon Musk’s vision

The multibillion-dollar investment will be a deciding factor to determine whether Tesla will be able to take on local competitors and fend off challenges by the likes of Daimler AG and BMW AG.

By: Bloomberg |
November 7, 2019 5:56:07 pm
Tesla’s China factory will make or break Elon Musk’s vision The Tesla Inc. Gigafactory stands in this aerial photograph taken in Shanghai, China, on Friday, Nov. 1, 2019. After starting construction this year, Teslas new factory is already producing electric vehicles on a trial basis. Photographer: Qilai Shen/Bloomberg

Written by Ville Heiskanen and Chunying Zhang

Elon Musk said he’s never seen a factory built so quickly, and now he’s about find out if it’s up to the task.

Tesla Inc.’s new Shanghai Gigafactory, which only broke ground in January, is weeks from starting mass production of electric sedans. China’s first plant wholly owned by a foreign carmaker — and Tesla’s first outside the US — is a crucial test of Musk’s bid to keep his carmaker profitable as he bets big on the world’s biggest market for electric vehicles.

Musk has predicted that Tesla will make at least 1,000 cars a week in Shanghai by the end of the year — a volume the company’s original factory in California spent months trying to hit — and has hinted that a weekly rate of 3,000 is a target at some point.

Tesla’s China factory will make or break Elon Musk’s vision Workers lay fiber optic cables underground near the Tesla Inc. Gigafactory in Shanghai, China, on Friday, Nov. 1, 2019. After starting construction this year, Teslas new factory is already producing electric vehicles on a trial basis. Photographer: Qilai Shen/Bloomberg

With Tesla’s volatile stock price and strained finances, investors will be watching closely how the ramp-up unfolds. The multibillion-dollar investment will be a deciding factor to determine whether Tesla will be able to take on local competitors and fend off challenges by the likes of Daimler AG and BMW AG.

The Shanghai roll-out will also provide clues about Tesla’s ability to truly go global. The company is planning to follow up with a production facility in a yet-to-be announced location in Europe, where it is enjoying burgeoning sales growth in several markets.

Tesla’s China factory will make or break Elon Musk’s vision The Tesla Inc. Gigafactory stands illuminated at night in Shanghai, China, on Friday, Nov. 1, 2019. After starting construction this year, Teslas new factory is already producing electric vehicles on a trial basis. Photographer: Qilai Shen/Bloomberg

Originally just a muddy plot about a 90-minute drive away from Shanghai’s city center, Tesla’s Gigafactory now stands tall amid deserted crop fields and meadows with wild plants. Dozens of electric motorcycles and mostly gasoline-powered cars are typically parked outside — used by workers to drive in from the closest residential area about 7 kilometers (4 miles) away. During lunch time, employees pour out for a meal of fried noodles prepared by street vendors.

The plant is already producing cars in small quantities as part of preparations. The final pieces of machinery were being installed in October, and State Grid Corp. of China opened the first transmission line to bring power to the facility that month. Tesla is working with local authorities to obtain manufacturing certification and hopes to get it by year-end, Chairman Robyn Denholm said this week in Shanghai.

Tesla’s China factory will make or break Elon Musk’s vision A security guard stands near the soon to be completed Tesla factory on the outskirts of Shanghai, China on Friday 01 November 2019.

The starting price of the locally made Model 3 sedan, which will only be sold in China, is about $50,000, making the luxury American brand more competitive with lower-cost domestic manufacturers, such as BAIC Motor Corp. and BYD Co., which offer functional sedans for just over half that sum.

While the price tag is only slightly smaller than what the most basic imported Teslas have been going for, the China-made versions will pack more features. It’s part of an attempt by Tesla to safeguard its brand image and pricing power in a market with hundreds of aspiring electric-car contenders.

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