Tesla has reportedly canceled plans to expand its Shanghai plant. The electric vehicle manufacturer originally intended to make a land purchase and create a global exportation center for its products. But tensions between China and the United States have persisted, making any vehicles shipped to our market substantially less profitable for the company.
Automobiles exported from China are currently subject to a 25-percent tariff issued under the Trump administration as retaliation for the Chinese Communist Party’s heavy restrictions on foreign manufacturers. While Tesla is one of the only companies in existence that isn’t subject to China’s mandatory joint venture, resulting in a factory it wholly owns, the firm would still be subject to tariffs on every vehicle shipped to the U.S. and has recently endured a campaign of negative publicity in the region. China seems suddenly less friendly toward Tesla and it’s responding with the maximum amount of caution.
The Asian nation has developed a sudden interest in how automakers handle data and has recently been giving Tesla a hard time. Though the CCP sees this as a national security issue, pertaining largely to foreign brands, and has encouraged companies to work with the government in creating data hubs. Consumer privacy isn’t really being taken into consideration. But we cannot say data was the straw that broke the camel’s back. Like most business executives and world leaders, Elon Musk enjoys a long history of changing his mind and overpromising.
Tesla decided against bidding on a plot of land adjacent to the Shanghai facility in March, even though the local government had been making deals with landowners to sell their property to the automotive sector. It’s assumed that the space would have gone to Tesla. But Reuters is reporting that might never have been the manufacturer’s intent — with sources clarifying that the automaker never officially declared it wanted to buy the 100-acre plot that would have added another 200,000 to 300,000 units to the factory’s annual capacity of (Model 3 and Model Y) cars.
But those anonymous sources also claimed that the company had been considering expanding exports of its Chinese-made Model 3s, including to the United States, which likely would have required more land. Now it looks as though the cars will be staying in Asia, with a significant portion being allocated to Europe … at least until Tesla’s German facility is completed.
Construction documents posted on a government website in March show Tesla is revamping its plant in Shanghai to add capacity.
Tesla still has land, designed for production but now used for parking, at its Shanghai site. One of the people said Tesla could expand its capacity beyond 500,000 on its existing site. Another said Tesla may acquire more land for more car production lines in the future.
Separately, Tesla is building facilities to repair and reproduce key components such as electric motors and battery cells and to build EV chargers at its Shanghai plant.
The Shanghai government has been talking to several companies to sell the land for commercial production of new-energy vehicles, said a person with direct knowledge of the matter.
Considering how strongly China wants to advance domestic EV brands, it always seemed risky for Tesla to get heavily invested there. We don’t know if it overpromised in the hope that the government would cut it a particularly sweet deal or simply doesn’t feel comfortable investing further due to the political and economic climate. But the resulting land decision means a gently dwindling commitment to China, despite sales allegedly being rather good. Tesla said it delivered 184,800 cars worldwide in the first three months of 2021 and attributed quite a bit of that to Asia.
Of course, the company doesn’t break down sales regionally (transparency?) so we have no way of knowing exactly how big of a role China played. But the Shanghai facility will remain important regardless, with Tesla stating that it’s still moving forward with the site “as planned.”