Why Elon Musk's New Shanghai Gigafactory Is Crucial for Tesla

Matthew DeBord  Business Insider

The factory is Tesla's first outside of the United States. The China gigafactory could significantly reduce costs - from transpacific transit and tariffs - for Tesla in a booming local market for electric cars.

The electric automaker purchased the site a year ago for roughly $140,000 and intends on building the 860,000-square-meter site far quicker than is typical of automotive factories, Forbes reports.

Musk had hinted recently at an upcoming Shanghai trip to break ground for the plant but Monday's event was not publicly announced until the Tesla CEO broke the news in a series of tweets earlier in the day.

"China is becoming the global leader in electric vehicle adoption, and it is a market that is critical to Tesla's mission to accelerate the world's transition to sustainable energy", Musk said.

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Chief Executive Officer Elon Musk and some Shanghai officials, including Mayor Ying Yong, on Monday attended a function at a site near the city kicking off construction of what would be the electric-vehicle maker's first car-manufacturing facility outside the U.S. While the ceremony marked a new journey for Tesla, it comes at a point where China's economy is showing signs of strain amid the trade war with the U.S.

In typically iconoclastic style, the 47-year-old Musk changed his Twitter profile picture around the time of the ceremony to one showing his face with an exaggerated handlebar moustache drawn on it.

The so-called Gigafactory would also be China's first wholly foreign-owned vehicle plant, a reflection of China's broader shift to open up its auto market even amid a whipsawing trade war between Washington and Beijing.

Other electric vehicle manufacturers in China include BYD Auto, BAIC Group, and government-owned Shanghai Automotive Industries Corp.

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He said the so-called Gigafactory - which could cost as much as $5bn (£4bn) according to reports - would start Model 3 production at the end of year. When the site is ready, it will initially build 3,000 Model 3s per week and when it reaches full capacity, match Tesla's planned volume for its factory in Fremont, California. The factory, now just an expanse of muddy fields about two hours from Shanghai, will produce affordable versions of Tesla's Model 3 and Model Y for Greater China, he said during the visit, which took place on a cold, rainy day. He provided no price figures for China-made cars.

China typically requires foreign automakers to set up joint ventures with domestic firms when establishing manufacturing plants, which entails the sharing of profits and technology with local partners.

Tesla has yet to give a price tag but the Shanghai government said it would be the biggest foreign investment there to date.

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