Elon Musk breaks ground on first Tesla factory outside US

Matthew DeBord  Business Insider

But the timing couldn't be more inauspicious.

The country's auto market is expected to have shrunk previous year for the first time in decades but demand for electric vehicles remains strong. The challenging environment also includes competition from several startups that all want to be like Tesla.

Tesla Chief Executive Elon Musk says the company will break ground on Monday for its Shanghai Gigafactory where it will begin making Model 3 electric vehicles (EV) by year-end.

Tesla Inc said on Friday it plans to start delivering Model 3 cars to customers in China in March.

Higher-priced models will be built in the United States for export to China, Musk said. The U.S. Securities and Exchange Commission moved to punish Tesla a year ago after his infamous "funding secured" tweet, with fines and a settlement that required corporate governance reforms.

The new factory is expected to begin production in the second half of 2019, according to a government report. The company cut the price of all its models by $2,000 to partially offset the loss of the subsidy.

China typically requires foreign automakers to forge joint ventures with domestic firms when establishing manufacturing plants, which means sharing profits and technology with local partners.

"Affordable cars must be made on same continent as customers", Musk wrote in another Twitter post.

China raised the import tariff on United States cars to 40% in July, then cut it to 15% from the start of this year as part of a trade war truce.

The Shanghai venture comes as U.S. companies face pressure from President Donald Trump to keep manufacturing jobs at home, and as Beijing and Washington wage a trade spat that has seen both sides levy tariffs on hundreds of billions of dollars of products.

Tesla said in October that it was operating at a 55 to 60 percent cost disadvantage due to tariffs and oceangoing shipping expenses to China. In November, they clocked 393. Apple triggered global equity losses last week when it said slackening Chinese demand spurred it to cut its revenue outlook for the first time in nearly two decades.

It has an annual production capacity of 500,000 electric cars. A key China PMI index fell below 50 in December to its lowest reading since May 2017, signaling weakening demand in the $12.2 trillion economy.

But construction of the plant - the subject of stop-start negotiations between Tesla and Shanghai for well over a year - gets under way just as the outlook for China's consumer market has turned worrisome.

'With the construction of the Shanghai factory, the faster the better (for Tesla)'.

Tesla's plans come as China's economy faces a slowdown - something Apple said has contributed to concerns it is going to miss its quarterly revenue target.

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