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Tesla goes big in China with Shanghai plant

Reuters  |  SHANGHAI 

By Brenda Goh

(Reuters) - Inc Chief Executive Officer on Tuesday landed a deal with Chinese authorities to build a new auto plant in Shanghai, its first factory outside the United States, that would double the size of the maker's global

The deal was announced as raised prices on U.S.-made vehicles it sells in to offset the cost of new tariffs imposed by the in retaliation for U.S. Donald Trump's heavier duties on Chinese goods.

Musk was in Tuesday, and the government in a statement said it welcomed Tesla's move to invest not only in a new factory in the city, a center of the Chinese auto industry, but in research and development, as well. has long pushed to capture more of the talent and capital invested by global automakers in advanced

plans to produce the first cars about two years after construction begins on its Shanghai factory, ramping up to as many as 500,000 vehicles a year about two to three years later, the company said.

That would make Tesla's large by auto industry standards, where most factories are tooled to build 200,000 to 300,000 vehicles a year, and roughly equivalent to the planned annual production at in Fremont,

Tesla shares rose 1.5 percent in U.S. trading even as some analysts questioned where the money-losing company will get the capital required to build and staff such a large plant.

Musk has said Tesla will be cash-flow positive this year. Analysts have predicted it will raise capital to fund a list of new projects, including launching an electric semi truck, a pickup truck, a compact SUV and new battery and vehicle production facilities that Musk has proposed for and

"I am sure that Tesla needs fresh money at the latest next year," said Frank Schwope, an with

The suggested it could help with some of the capital costs. "The will fully support the construction of the Tesla factory," its statement said.

Tesla said Tuesday's announcement will not impact U.S. operations, which continue to grow.


China is the largest market for electric vehicles, and most forecasters predict that electric vehicle sales in the country will accelerate rapidly as government regulation drives toward a goal of 100-percent electric vehicles by 2030.

More than 28 million vehicles were sold in China last year, and annual sales are forecast to top 35 million by 2025. That would be more than double the current U.S. market, where new light vehicle sales run at about 17 million vehicles a year.

Musk was talking about building a Chinese factory long before the proposed punitive tariffs on Chinese goods. China until recently levied 25-percent tariffs on imported cars, and for decades automakers have been moving to build more vehicles in the markets where they are sold to neutralize currency shifts and trade policy reversals.

Chinese authorities' decision to grant Tesla permission to move forward lands as Trump is fighting to stop U.S. manufacturers from responding to his trade policy by shifting production overseas, as U.S. said it would do last month.

Against the backdrop of trade conflict with Washington, China is using its power to draw investment from the global auto industry. German automakers on Monday and Tuesday dominated a list of deals between China and focused on the development of electric vehicles and technology for connectivity and self-driving cars.

BMW agreed with partner to up production capacity at joint venture to 520,000 BMW brand vehicles in 2019.

Capacity at BMW Brilliance Automotive's (BBA) two production sites will outstrip in Spartanburg, South Carolina, for the first time. BMW said last week it would be unable to fully absorb a new Chinese 25-percent tariff on imported U.S.-made models and would have to raise prices on the vehicles it makes in

Volkswagen, meanwhile, said it will cooperate with China's FAW Group on technologies including e-mobility, connectivity and autonomous cars.

Tesla has been in protracted negotiations to open its own factory in China to help bolster its position in the country's fast-growing market for electric cars and to avoid high import tariffs.

Tesla hiked prices in China over the weekend to a level more than 70 percent higher than in the amid mounting trade frictions between and that have seen several U.S. imports, including cars, subjected to retaliatory tariffs of 25 percent.

Musk had previously criticized China's tough auto rules for foreign businesses, which would have required it to cede a 50-percent share in the factory. After China announced in May that it planned to scrap by 2022 the rules on capping foreign ownership of new-vehicle ventures, Tesla registered a new firm in Shanghai.

"The will certainly improve Tesla's positioning in China and allow it to locally produce and avoid import tariffs. The relaxation of the 50/50 rule for JVs in China uniquely benefits Tesla because they did not have an existing JV in China" as rivals do, said Tasha Keeney, an with

(Reporting by Brenda Goh; Additional Reporting by Shanghai and Newsrooms and Vibhuti Sharma and Sonam Rai in Bengaluru; Writing by Joseph White; Editing by and Nick Zieminski)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Tue, July 10 2018. 21:24 IST