Tesla’s Latest Aim: Build 500,000 Cars a Year in China


Still scrambling to sort out production problems at its electric car factory in California, Tesla is taking on another big challenge: building a vast new plant and development center in China.

The automaker said Tuesday that it had reached an agreement with the Chinese authorities to build a battery and automobile factory in Shanghai — its first plant outside the United States — that would eventually be capable of producing 500,000 electric vehicles a year.

The company did not disclose how much it planned to invest in the venture, but it said it would be the sole owner. Other foreign automakers, including General Motors, Volkswagen and Toyota, have been required to form joint ventures with local partners to produce cars in China. But the Chinese government recently said it would ease that requirement.

Tesla said it expected to begin construction as soon as it had obtained the necessary approvals and permits. “From there, it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up,” the company said in a statement.

And Mr. Musk has also promised that Tesla would produce a version of its first mass-market offering, the Model 3 sedan, costing $35,000. So far, the only versions available sell for $49,000 and up.

The Model 3 is a critical vehicle for the company. Mr. Musk has said Tesla needs to be able to produce at least 5,000 Model 3 cars a week to become profitable in the second half of this year. Earlier this month, Tesla said it reached that level in the final week of June, after setting up a new assembly line in a giant tent just outside the Fremont plant.

Tesla has reported losses every year since it was founded in 2003. In recent months, analysts have become worried about its finances and the slow pace of Model 3 production. Moody’s Investor Service downgraded Tesla’s credit rating over concerns about how much cash the company is using up.

China is a key growth market for Tesla, and the world’s largest market for electric vehicles. The government there subsidizes and promotes the production and sale of electric cars as part of its efforts to improve air quality and cut tailpipe emissions.

Tesla began selling cars in China in 2013 and has set up 35 sales centers and some 1,200 charging stations in the country. It sold about 15,000 cars there last year, according to estimates by LMC Automotive.

Tesla said its Shanghai-based initiative would include a research-and-development center and a sales operation. The local government said it would be the largest manufacturing project backed by foreign investment in Shanghai’s history.

A Tesla spokesman said the plant would not affect the company’s American operations and was not a response to the escalating trade dispute between the United States and China. But a Tesla factory in China is most likely not something the Trump administration wants to see.