Tesla Inc. Chief Executive Officer Elon Musk landed a deal with Chinese authorities on Tuesday to open a massive factory in Shanghai, China’s primary commercial city. It will be their first overseas production and assembly plant.
The plant, named Gigafactory 3, will be located in Lingang near Shangai’s free trade zone. It is expected to serve as a research, manufacturing and sales center. Elon Musk plans to build the most advanced electric vehicle factory and expects an annual production capacity of 500,000 units.
The Gigafactory 3 will be the first energy car plant to be fully owned by a foreign company in China. Previously, It was not even possible because of the foreign investment restrictions. Therefore, in order to build a vehicle factory, investors had to cooperate with local firms, which would have at least 50% of the ownership.
However, the choice of country is a very smart strategical move by Elon Musk. China is the largest market for vehicles in the world. Last year, more than 28 million cars were sold, and annual sales are forecast to top 35 million by 2025. On the other hand, about 17 million vehicles are sold annually on the U.S. market.
Additionally, Tesla is gaining popularity in China. Last year, it had annual sales of $2bn, which is 90 percent more compared to the year before.
Therefore, China is the largest overseas market for electric vehicles. Moreover, sales will accelerate, since the government(because of high air pollution) is trying to achieve a goal of 100-percent electric vehicles by 2030 and it will possibly become the biggest electric vehicle market in the world.
There is no doubt that this is a smart decision. However, the question is how Tesla plans to pay for this. According to Bloomberg, it had only $2.7bn in cash at the end of the first quarter. The possible answer was provided by the Shanghai government. They stated, “The Shanghai municipal government will fully support the construction of the Tesla factory.”