China’s recently announced plan to scrap its 50 percent foreign ownership rule for auto assembly plants could be just the doorway into the market Tesla CEO Elon Musk was looking for. It appears he’s already capitalized on it.
The electric automaker registered an electric car firm in Shanghai on May 10th, Reuters reports, in the hopes of building vehicles where they’re sold, rather than shipping them across the Pacific at great cost.
In recent trade talks with the U.S., China said it would lower import tariffs on automobiles and do away with the law limiting foreign ownership of auto assembly plants to 50 percent. The change goes into effect for NEV vehicles this year, before applying to all automakers in 2022. This was always a sticking point for Tesla. Joint ownership, in China especially, puts an automaker’s technological secrets at risk of theft. Then there’s the whole “split the profits” thing.
Still, China is the world’s fastest-growing EV market, and plenty of automakers are willing to accept the risk if it means feeding a seemingly bottomless pool of buyers. Musk, however, wanted a better deal. The company has been in seemingly endless talks with China over a potential Shanghai plant, and in March Musk tweeted at President Trump, decrying China’s 25 percent import duty. (Even a solely owned plant in the city’s free-trade zone would still incur the tariff.)
Now, just a few weeks after China’s concession on imports and ownership, a new company, Tesla (Shanghai) Co Ltd., pops up in Shanghai’s trade-free zone. The filing, seen by Reuters, claims the company will focus on electric cars, parts, and batteries, and lists Tesla China boss Zhu Xiaotong as its legal representative. The only shareholder listed is Tesla Motors HK Limited.
Tesla remains tight-lipped on what the filing means.
Local assembly of both cars and batteries, minus the burden of profit splitting and tariffs, would be a financial boon for the company — especially considering that Teslas retail for hefty sums in China. A Model X starts at over $126,000. Last year, Tesla’s Chinese sales doubled to roughly 20,000 vehicles.
Still, not everyone feels it’s a great idea. The future profits Tesla could collect from a wholly owned Chinese operation are offset by the risk of funding the venture. Despite its current lofty valuation, Tesla burns through cash at an alarming rate, and the financial ground it’s standing on is hardly the firmest.