Tesla In Negotiations With Chinese Government To Build Local Manufacturing Plant
Tesla CEO Elon Musk has confirmed that his company is in the middle of negotiations with the Chinese government on the possibility of manufacturing its cars in the country. Without jumping into specific details of the negotiations, Musk hinted that if the Chinese government gives the thumbs up on allowing a manufacturing plant in the country, prices of its models could potentially drop by around 33 percent.
The California-based automaker is determined to gain a stronger hold in the Chinese market, knowing full well the benefits of being a player in the country. So far, sales of Tesla models in China have been tepid at best and Musk is determined to increase that number. From January to September 2015, Tesla has sold just 3,025 units of the Model S in China, and while that may be an admirable number in another country, that’s far from what can be characterized as decent volume in a country China’s size.
Having a manufacturing facility in China could open that sales floodgate for the company. But getting there will take a lot of work, and in the Chinese government’s case, a lot of convincing. One potential roadblock is the government’s requirement for a foreign automaker to establish a joint venture with a Chinese company just so the automaker can build cars in the country. So far, Musk hasn’t said anything pertaining to progress on its negotiations with the government.
It is imperative that Tesla boosts its sales in China considering the massive investments it has made in other divisions, particularly its $5 billion battery factory in Nevada. Without the strength of the Chinese market to boost its volume, Tesla has already been forced to slash off roughly 30 percent of its 600 employees in the U.S. It’s not a given that a Chinese plant will reverse its sales fortune in China, but at the very least, it’s going to help drive up production, and just as important, brand recognition among Chinese customers.
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Why it matters
Any automaker worth its salt should understand how important China is to their business. It’s not only the biggest automotive market in the world – 20 million cars were sold in the country in 2014 – but the Chinese government has also been pushing for lower-emissions vehicles for quite some time now. That’s right smack in the middle of Tesla’s wheelhouse; Musk knows this and he’s determined to get a bigger piece of the pie.
One way to accomplish that is to put its production facility right smack in the middle of the country. According to Musk, having a plant in China could cut the cost of Tesla cars by a third of what they are now, which means that more people in China can afford the cars if you take into account the government’s buyer incentives for lower-emission vehicles.
For what it’s worth, Tesla’s already laying the ground work for a possible long-term future in China. In the same report, Musk confirmed that the company is already working with Chinese Internet company Baidu on developing GPS navigation and automated driving technology. Could this be the local company that Tesla needs to get on the good side of the Chinese government? It’s too early to tell at this point, but if the Tesla-Baidu partnership does push through, it’s going to be something that’s going to advance Tesla’s goal of setting up shop in the biggest auto market in the world.
Read more about the Tesla Model 3 here.