Why Tesla Is Betting Big in China With a Shanghai 'Gigafactory'

While trade tensions between Washington and Beijing have been heating up, at least one American has been warmly welcomed here in China. Chinese Premier Li Keqiang even offered him a green card.

We're incredibly excited to break ground on the Shanghai Gigafactory.

Tesla's Elon Musk has big plans in China, recently breaking ground on a massive factory, the company's first production site outside the U.S. The Gigafactory will eventually have capacity to make 500,000 vehicles per year.

So why, with tariff hikes looming and tensions rising, is Tesla choosing now to build a giant factory in China?

The potential market for Tesla here is huge.

China is the world's biggest market for electric vehicles and is already Tesla's number two market after the U.S., even though it's only been able to sell imported vehicles here. EV or electric vehicle sales are surging here. They topped 1.26 million last year, which is roughly three times the number sold in the U.S. Even so, Elon Musk has been reluctant to commit to manufacturing in China until now.

Several factors have recently changed his equation.

Before, foreign automakers like Ford or General Motors had to work in conjunction with a joint venture partner in China in order to manufacture locally. That means they had to share profits and potentially even the technology used in their products with their Chinese partner.

But last year, China started to lift its restrictions on foreign investment in the auto sector, enabling foreign carmakers to own their Chinese operations outright for the first time. This is part of Beijing's attempt to resolve trade tensions with the U.S., promising greater access for foreign companies.

This rule change made conditions much more appealing for Tesla because it will be able to operate independently. It will be the first major auto company to test the new rules.

The next factor accelerating Tesla's plans: tariff math. Even though President Trump has been pushing U.S. automakers to manufacture more at home, the tariffs on vehicles in this case may have made the new factory the cheapest way into the Chinese market. Since the trade war, Tesla was hurt badly. Costs of its imported vehicles in China have been driven up.

By building cars locally, Tesla will be able to bypass any tariffs that China has, reduce the cost of its cars in China, and then increase volume sales.

Being the first company trying out this new arrangement does come with its risks.

For Tesla, taking 100% control of the company also means that it will have to bear 100% of the burden. Without a partner in China, Tesla will find that it's much more difficult to navigate the bureaucracy in China. It won't have a joint venture partner with which to share the risk and to share costs.

On top of the startup challenges, some have questioned if the market is as friendly for Tesla as it might seem.

The overall auto market in China recorded an annual decline for the first time in almost three decades last year, and Tesla's projection of producing half a million cars is a massive step up for the company, having only sold around 14,000 cars in China in the first nine months of 2018.

Tesla also has another hurdle: local competition. The Chinese market is dominated by a handful of local manufacturers.

Electric vehicles are at the heart of Beijing's 'Made in China 2025' industrial strategy. Local manufacturers are heavily subsidized by the government and supported with other favorable policies, such as BYD, which even hired Leonardo DiCaprio for its commercials.

You can make history tomorrow.

Musk knows the clock is ticking on the company's expensive bet and aims to get running in record time. Even with the many hurdles remaining, he says this muddy field should be a factory producing Model 3s before the end of the year.

中文

尽管华盛顿和北京之间的贸易紧张局势不断升温，但至少有一位美国人在这里受到了中国的热烈欢迎。中国总理李克强甚至向他表示可以提供绿卡。

我们对于上海超级工厂的破土动工感到无比兴奋。

特斯拉的埃隆·马斯克在中国有宏大的计划，最近为一座巨型工厂举行了奠基仪式，这是该公司在美国境外的第一个生产基地。这座超级工厂最终将拥有每年生产50万辆汽车的能力。

那么，为何在关税上调迫在眉睫、紧张局势加剧的情况下，特斯拉选择现在在中国建造一座巨型工厂呢？

特斯拉在这里的潜在市场是巨大的。

中国是全球最大的电动汽车市场，并且已经是特斯拉仅次于美国的第二大市场，尽管之前它只能在这里销售进口车。电动汽车的销量在这里激增。去年销量突破126万辆，大约是美国销量的三倍。即便如此，埃隆·马斯克直到现在才下定决心在中国进行生产。

最近有几个因素改变了他的盘算。

以前，像福特或通用汽车这样的外国汽车制造商必须与中国的合资伙伴合作，才能在当地生产。这意味着他们必须与中国伙伴分享利润，甚至可能要分享其产品中使用的技术。

但去年，中国开始放宽对汽车行业外国投资的限制，首次允许外国汽车制造商完全拥有其在中国的业务。这是北京方面试图解决与美国贸易争端的一部分，承诺为外国公司提供更大的准入机会。

这项规则的改变使得条件对特斯拉极具吸引力，因为它将能够独立运营。它将成为第一个测试这些新规则的大型汽车公司。

加速特斯拉计划的下一个因素是关税问题。尽管特朗普总统一再敦促美国汽车制造商将更多生产线迁回国内，但在这种情况下，对汽车征收的关税可能使建造新工厂成为进入中国市场的最廉价方式。自贸易战以来，特斯拉受到了严重打击，其在中国的进口车成本被推高。

通过在本地生产汽车，特斯拉将能够规避中国征收的任何关税，降低其在中国的汽车成本，从而增加销量。

作为第一家尝试这种新模式的公司，确实伴随着风险。

对特斯拉而言，100%控股公司也意味着它必须承担100%的负担。没有中国的合作伙伴，特斯拉会发现要应对中国的官僚体系将困难得多。它将没有合资伙伴来分担风险和成本。

除了初创挑战，一些人也质疑市场对特斯拉是否像看起来那么友好。

去年，中国整体汽车市场近三十年来首次出现年度下滑，而特斯拉计划年产五十万辆车，对于这家在2018年前九个月仅在中国售出约14000辆车的公司来说，是一个巨大的飞跃。

特斯拉还面临另一个障碍：本地竞争。中国市场由少数几家本土制造商主导。

电动汽车是北京“中国制造2025”产业战略的核心。本土制造商获得政府的大力补贴，并得到其他优惠政策的支持，比如比亚迪，甚至聘请了莱昂纳多·迪卡普里奥为其拍摄广告。

马斯克知道，对于公司这场昂贵的赌注，时间正分秒流逝，他计划以创纪录的速度投入运营。尽管仍有许多障碍，但他表示，这片泥泞的土地将在年底前变成一座生产Model 3的工厂。